Receiving a bonus at work?

Question

I am told it will be taxed at 40%. If I change my deductions will it make a difference or will it still be that high??

Answer 1

It all depends on where you live! :) Each country has its own laws. I'm _assuming_ you're in the US - if so, ask if they can put the money in your employer's 401(k) plan, or, if your employer doesn't offer one, then ask if they can put it into a Roth-IRA for you. (Google Roth-IRA to figure out what's a good place for you to start one if you don't already have one).

Putting the money into some sort of retirement plan like this will reduce the taxes, but won't get more money into your hands. It's the law - the money is paid out as a single check, so there's nothing your employer can do about it, either!

Hope that helps,

FF

Answer 2

when my husband gets his bonus (in March), so much is withheld (37.1% exactly) that it pays our tax bill for the entire year PLUS more.  When this happens, we calculate the amount already paid and compare it to last year's tax bill, and adjust our W-4 accordingly (we currently have 15 allowances).  It does not matter what your W-4 says, they will withhold at least 25% (federal tax I mean) for the bonus.  Check your last year's tax paid on your 1040 and see if you can increase your allowances so you get less tax withheld now in your weekly paycheck, but be careful not to increase it too much.  It depends on your situation, how many children you have, your total income level, etc.  I agree that it is annoying that so much is withheld from bonuses!

Answer 3

Probably, no difference.

Federal taxes on bonuses are generally withheld at a flat 25%.  Add 7.65% for Social Security, Medicare and state taxes and you often get close to 40%.  If too much is withheld, you will get it back when you file your tax return next year.

If you can afford to put any (if not all) of the bonus in to your 401k, that is one way to avoid the federal and state taxes.