If your bonus doesn't have the proper withholdings taken out up front, it may create taxes due when you file your tax return.
This has been an ongoing issue for people who are paid bonuses during the tax year. As long as your employer withheld taxes from the bonus check, we feel covered for our tax liability when it comes to actually filing our return after the year the bonus is paid.
While bonuses are subject to income taxes, your employer will generally treat your bonus as “supplemental income” which is subject to federal withholding at a 22% flat rate. But that's not how the IRS views bonuses, and in most cases they are under-taxed.
That's where things can unexpectedly go downhill. Bonuses count toward your entire annual income, so they're really subject to tax at your highest marginal rate.
Here's an example:
In this example, let’s say you are in the 32% bracket, and receive a $100,000 bonus:
Withholding: $100,000 x 22% = $22,000
Actual Tax: $100,000 x 32% = $32,000
Under withheld: $10,000
What's your comfort level?
Depending on your financial situation, you may be fine with a balance due of 10,000 when you file your return, but if not, you will need to determine the shortfall of withholding and request additional withholding on your salary during the rest of the year to make up the under-withholding.
If you have any questions about taxes and withholdings on bonuses – or if you're in hot water because of tax-related issues, please don't hesitate to reach out to me or any of my Tax Problem Solver Team, and we can help you with whatever's going on.
Contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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