Bonus Taxes

January 21, 2005 7:20 PM

How can one determine how much tax they're going to pay on their annual bonus? I don't much understand tax schedules or anything, pointers to "for dummies" style-explanation sites would be helpful.
posted by TuxHeDoh to Law & Government (11 answers total)

I'll leave it to experts for the links, but I figure anywhere from 30% - 40% for the tax on bonus. It truly sucks. Fortunately they take it out before they give it to us now, which helps. That first year we all got an April surprise.
posted by petebest at 7:26 PM on January 21, 2005

Yeah, anytime I get money I figure I'll get to keep 65% of it. I might be a little off but that usually keeps me from getting a scare later.
posted by pwb503 at 7:44 PM on January 21, 2005

Response by poster: FWIW, I'm having deductions taken out already, I've just been told what my annual bonus is, and am wondering how much of it I'll see, not trying to figure out who much to stash away..
posted by TuxHeDoh at 7:59 PM on January 21, 2005

Shouldn't it be aout the same percentage as with a regular paycheck, unless the added money pushes you into a higher tax bracket or past the social-security ceiling?
posted by subgenius at 8:01 PM on January 21, 2005

I'm not a tax lawyer or accountant or anything like that, but I deal with similar stuff when I teach in summer.

Odds are anyway, this is "supplemental income," which gets withheld at the same rate for everyone. For federal income tax, it's ~25%, but then you'll need to add the other federal taxes (another 10% or so?) and your state tax withholding on top of that.

It ends up being taxed at whatever rate is appropriate for your income, it's only the withholding that's flat-rate.

I'd bet on receiving 60-65% of it.
posted by ROU_Xenophobe at 8:12 PM on January 21, 2005

It's my understanding that it depends on how it's paid out. If it's paid as an actual bonus I was told it's pretty much a 40% deduction.

My very lovely bonus was much less lovely when that 40% was taken out.
posted by FlamingBore at 8:43 PM on January 21, 2005

In my experience, it's treated like I made my regular salary plus the bonus for that semi-monthly pay period. Then it is taxed as if I made that much x 24 for the entire year. This ends up being at a very high percentage.
posted by smackfu at 8:56 PM on January 21, 2005

FlamingBore - I'm going to violate the commandment just below this box not to make a wisecrack.. and this isn't really a wisecrack... but I read the last sentence of your post as "My very lovely wife was much less lovely when that 40% was taken out."

Gave me a chuckle. :)
posted by socratic at 9:49 PM on January 21, 2005

My bonus was taxed as a lump sum 25% federal 8% state, and I'm in a pretty high tax bracket based upon my base salary.
posted by MattD at 5:39 AM on January 22, 2005

And, of course, you are going to be taxed 6.2% for Social Security and 1.45% for Medicare, too, unless you've already had $90,000 in gross for the year in which case your Social Security is maxed out.
posted by MattD at 5:40 AM on January 22, 2005

Note that there can be a difference between what is taken out, and what you'll actually owe when you file your annual tax forms.

You live in Baltimore, and are going to be paying:

* Federal taxes (see below)
* Social security (old age and Medicare): 6.2%, up to $90,000 [zero thereafter] plus 1.45%
* Maryland state taxes: 2 to 4.75%
* Local taxes: 3.05%

What makes answering your question problematical is that the tax you'll owe depends on your total income for the year - and you won't know that until the end of the year. For example, if you win the lottery (lots of income), then you'd end up paying 4.75% state tax on your bonus. On the other hand, if you got the bonus in February and were unemployed for the rest of the year, the taxes you would owe would be considerably less.

One way to think about bonuses or other lumpy payments is "marginal tax rate". If you look at page 286 of the 2004 tax instructions (pdf) , you'll see, for example, that for every dollar of income between $29,050 and $70,350, for example, you would owe 25% to the federal government.
posted by WestCoaster at 8:42 PM on January 22, 2005