End of year big payroll payment, payroll isn't taking enough federal withholding?

Question

I own my own company and pay myself payroll. My last 2007 payroll w2 payment is going to be relatively large (like a bonus), and the marginal rate it falls in based off the wages paid to date is 28%.

The girl handling my account said that the federal withholding would come out to under 2% since it's being taxed at the "annual rate" since the funds have accumulated over the year. This doesn't seem to make any logical sense to me.

Could I get a third party opinion?

Thanks.

Answer 1

Bonuses and other irregular payments are supposed to be withheld at the statutory rate of 25% for federal income tax. You may withhold at a higher rate at the request of the employee but not a lower rate.

Answer 2

There is a maximum limit to how much you can pay into Social Security in a year. If you're making enough money, you'll hit that limit before the end of the year through your normal withholding and your take-home pay will then increase by the amount no longer being withheld. I think your annual gross income needs to be close to $100,000 before you'll see that happen.

I'm not sure about similar situations that might apply to normal income tax withholding.

Answer 3

If you are worried that not enough tax is going to be withheld, you can always make an estimated payment using Form 1040-S. The payment would be due January 15, 2008.

Answer 4

The typical bonus check has 25% withheld for federal income taxes.