Why are Bonus' taxed so much? — Page 3

I convinced the partners today that we should have a distribution at the end of the year.

I get my bonus in February/March. It is dependent on the company's reported income and earnings. After taxes and my 401(k), I will see less than half of it.

But, it is a bonus, and usually a nice chunk of change, so I will be happy with what I get.

Because it is a lump sum, it is taxed higher than my normal paycheck. That is the only thing that really kind of sucks.

Mamie,
I read your entire post. It's nice to see the technical explanation and, in fact, I kind of already knew that. Since I get NO bonuses, though, I've never seen it put to practice.

That said, there's somethign to be said for being a freelance singer and doing lots of readings and demos for cash.

I guess I'm just naive enough to think that people would rather be happy with their employers if they knew they weren't trying to scr?w them out of their bonuses.

Gripe about the federal and state tax system. Definitely gripe about how much everybody - including you - have to pay in taxes. Come down here to DC and organize marches and disrupt the government and make yourselves a pain in the tush. (Lord knows I did - only my protesting was against Viet Nam) Just don't go and hang your boss when they aren't the one's who are doing it to you!

---

George Bernard Shaw:
"We learn from history that we learn nothing from history."

---

hmmmmm..... NASTY! (Makes the Target card look good.) Of course, you don't have to claim it as income so no taxes come out of it...

---

Updated On: 12/16/05 at 02:03 PM

Mamie--what do you--as the resident BWW tax expert--think of my suggestion of changing your W4 before the bonus distribution and changing it back after?

---

PJ - the only thing the W4 does is gives your employer broad guidance as to how taxes should be DEDUCTED from your salary. In no way, shape, or form does it change your actual tax liability. If you made $X during the year, you're going to owe $X dollars worth of taxes to the feds (and the state boys, if you have state income tax.) You can change your W4 at any time you want during the year, the bottom line is that if you don't have enough taxes deducted during the year, you're going to owe the difference to tax boys.

Let me give you a painful example. The year I retired I was blessed with lots of bonuses from lots of offices that I had done work for. My taxes all year had been deducted from my pay checks based on my regular salary. When I left, my TAXABLE income for the year suddenly shot up - by a few tax levels. Like your employers, mine had deducted a large, flat rate from each of those awards - both for federal as well as state taxes. Despite this, the combination of all of them, added to my regular salary, made my tax liability even higher.

When I filed my tax return that year I not only owed Uncle Sam for even more federal tax, I also owed the good 'ol boys in Richmond Virginia for even more. But the killer was that I owed BOTH of them an additional penalty because I hadn't had enough taken out to begin with! I successfully argued the federal tax bill, but those ol' peckerwoods in Richmond won out and got my money.

---

Updated On: 12/16/05 at 02:52 PM

Well, IF you get audited by the Grinch Who Stole Christmas then you're right, they're income.

---

Yep - when you get a refund every year it means you consistently overpay your taxes. They LOVE people who do that! LOL. If you didn't change your W4 you'd still get that extra tax money back. You'd just get it in a larger refund.

(by the way - I am absolutely NO kind of tax expert! If it wasn't for the on line tax filing software, I'd be up a creek without a paddle!)

---

Updated On: 12/16/05 at 03:10 PM