year end bonus protocol

January 3, 2008 10:13 AM

How do year-end bonuses usually work?

How do year end bonuses usually work? Is it separate from your paycheck, or is it the sum value of the last paycheck of the year? Also, if it is separate, are taxes taken out?

I was quoted one amount, which I thought was in addition to my regular salary. Hence, a bonus. I got just got my paycheck for the last of the year - I think. Nothing is ever explicitly labeled in a small company. This amount deposited was more than my usual paycheck but less than the purported bonus. It actually calculated out to approximately the quoted bonus, after taxes. But I did not receive my regularly scheduled paycheck. So if indeed its all just a lump sum, that's really disappointing because it amounts to very little above what I was already expecting -- my normal paycheck. Keep in mind, we're not Goldman Sachs here so the bonus isn't mindboggling but it would have been a really nice to put some money into an IRA.

Wondered what the usual protocol for the ye bonus was. Is there even a protocol?

Thanks,
Looking A Gift Horse In The Mouth.

posted by anonymous to work & money (24 answers total)

I don't know if there's a standard protocol, but I can tell you that (in the US, anyway), your bonus is taxed. Can't you look at your pay stub to see your gross pay, and determine that way if it amounts to your regular gross pay + the quoted bonus amount?
posted by amro at 10:22 AM on January 3, 2008

Also, this is anecdotal, but at everywhere I've worked bonuses have come as a separate check. I thought I recalled that bonuses are taxed differently from pay. Maybe you got a raise and the bonus is still coming?
posted by amro at 10:24 AM on January 3, 2008

amro > that is the way that I received bonuses, when I worked at places that provided them. The bonuses were taxed way, way, way more heavily than my regular paycheck.
posted by Lucinda at 10:27 AM on January 3, 2008

Bonuses in the USA are typically taxed at %40.
posted by internal at 10:28 AM on January 3, 2008

Our company bonuses come in our regular paycheck, but that chunk of the money is taxed at a higher rate. I usually figure I'll see approximately half of whatever number is quoted to me as the bonus, so internal's 40% tax rate sounds about right. I would find it very odd if I was quoted a year-end bonus and in reality the number they gave me was the total of my normal pay plus bonus.
posted by vytae at 10:30 AM on January 3, 2008

I've had a bonus come as a line item on the stub on my regular paycheck as well as getting seperate check. I've always had taxes taken out of the bonuses at the same rate as my salary.
posted by prk14 at 10:30 AM on January 3, 2008

Why would you feel like this isn't something you can just ask the person who handles paying you? "Hey HR person, I just realized I have only one check here - was the bonus and last paycheck on one check together?"

Bonuses are handled however a company chooses to handle them, and at a small company things are often done in the most simple manner possible. You yourself should also address your confusion in the simplest manner possible - by asking.
posted by phearlez at 10:31 AM on January 3, 2008 [3 favorites]

What you describe is exactly what happens at my job. You get a paycheck bigger than normal. Let's let P_b equal the paycheck with the bonus, P_n equal the normal paycheck, B equal the total bonus and T_b equal the taxes on said bonus. The formula would look like this.

P_b = P_n + (B - T_b)

In other words, taxes suck.
posted by grumpy at 10:32 AM on January 3, 2008

Yes, check the stub to see if there is a breakdown of what that particular check represents. For what it's worth, my year-end bonus comes in my regular pay check and yes, taxes are deducted.
posted by jerryg99 at 10:32 AM on January 3, 2008

There is no protocol, unless your company has a document which states it's protocol.

With that being said, you should certainly expect a bonus to be taxed. I would also expect a bonus in a separate check, but as you say, it's a small company, so anything is possible. If your paycheck says nothing about why you got more or less, you're just going to have to suck it up and ask.

On a sidenote, is it possible you maxed out any contributions this year, like to a 401k, an IRA, or Social Security. If you hit the limit of contributions on any of those in December, your next paycheck would be higher, since that contribution couldn't be taken out, but only higher by that amount. In that case, maybe there is still a separate bonus check coming.
posted by poppo at 10:32 AM on January 3, 2008

My understanding is there's not some specific % bonuses are taxed at (if there was people would call it something else to avoid that.)


When you receive a bonus, an abnormally high check, you're taxed as if that check would come to in yearly income if you received it every pay period, and your tax bracket goes up.

For example you normally get X each month and are taxed at the 12X bracket, but in December you receive X + BONUS and are taxed at the 12*(X + BONUS) bracket. Basically with the bonus you move up a level or two and get taxed much higher. It shoud show on your pay stub also to clear up confusion.

tax brackets are: http://www.moneychimp.com/features/tax_brackets.htm here:http://www.moneychimp.com/features/tax_brackets.htm
posted by oblio_one at 10:39 AM on January 3, 2008

Bonuses in the USA are typically taxed at %40.

Withholding rate != tax rate.
posted by ROU_Xenophobe at 10:39 AM on January 3, 2008

There is no reason to expect the bonus to be a separate check.

Any decent payroll package can do it either way (included, or as a separate check), so there's really no way to guess on that front. That said, check your pay stub.
posted by Tacos Are Pretty Great at 10:42 AM on January 3, 2008

Bonuses are not taxed *extra*. They're taxed at the bracket you would be in, if that pay period, you made your salary + bonus. So if I make 500/week, and it's taxed 25%, my normal paycheck is 375. If I get a 500 bonus, that may bump me into the 33% bracket, so my paycheck would be the usual 375 + the bonus minus taxes=375+266=641. When you do your return, though, the weight of the rest of the years' paychecks will mean, you get almost all of the difference back.
posted by notsnot at 11:00 AM on January 3, 2008 [1 favorite]

When I worked in payroll, our company's CPA told me to use the "one time" or "daily" pay chart in the tax booklet when it came to withholding taxes from bonus checks. If the company included the bonus in your regular paycheck, chances are they deducted less taxes then.
posted by Oriole Adams at 11:05 AM on January 3, 2008

Do you have automatic 401k deductions or something like that set up? Last time I worked at a place that gave bonuses, the 401k deduction would apply if you didn't specifically turn of auto-deduct for that paycheck, so a percentage of your bonus would end up in your 401k instead. (Not that this is necessarily a bad thing, but it might be where some of the money went.)
posted by restless_nomad at 11:20 AM on January 3, 2008

i agree you should just ask - i am in payroll and I certainly wouldn't mind the question. although, i would think you would have gotten a pay stub that made it clear their intentions.

shawnstring, you might ask if your laptop was counted as w-2 wages. it is possible the corresponding income from your bonus in kind will show as part of your wages just like a monetary bonus will. they obviously didn't collect tax on it, but could have done it this way to make sure both the company and you pay the appropriate taxes.
posted by domino at 11:34 AM on January 3, 2008

Even if it is being done the same way as every other company, if you do not understand you paycheck ask for it to be explained to you. Just say you don't understand. It should be totally cool.

If you were promised one amount of money and got a lesser amount, that is a big red flag. If the boss or whoever is to busy to answer this question for you, that is smaller, but still red, flag.
posted by shothotbot at 11:44 AM on January 3, 2008

domino:
it was listed on my final paycheck of the year (issued on 12/31/07) as a fringe benefit (1732.54) and then later on the same stub there is a adjustment to net pay for a "non-cash fringe benefit" for $1600. So I think they payed the taxes on it for me, and then i just make up the difference.

Either way i got a new laptop. w00t.
posted by ShawnString at 12:24 PM on January 3, 2008

Withholding rate != tax rate.

Indeed. Just to reiterate: Your employer will probably withhold taxes at a higher rate than it normally does in your weekly/bi-weekly/twice-a-month pay. This does not necessarily mean that your bonus is subject to higher taxes. You can look here to gauge whether you're likely to get the "excess" withholding back when you file.
posted by Kwantsar at 12:28 PM on January 3, 2008

The IRS has special rules for withholding on supplemental income, such as bonuses. Here are the 2008 rules, I assume the 2007 rules are similar.
posted by crazycanuck at 12:48 PM on January 3, 2008

Gift tax.
posted by WCityMike at 1:51 PM on January 3, 2008

The way it worked where I am (until tomorrow) is that the day before Christmas, we got a tin of sugar cookies. From Ace Hardware. $1.79.
posted by pjern at 7:36 PM on January 3, 2008

For my bonus, it arrives as an additional line item in my payslip and taxed according to the prevailing tax rate.
Just ask Payroll, they should be able to handle this question with ease.
posted by arcticseal at 2:00 AM on January 4, 2008