Taxing a bonus

[Vitamin K]

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I had this question come up today and I honestly don't know the answer because I've never been in this situation ( 🙁 ):

If a company gives you a $4,000 bonus, is that bonus taxed right away (like your usual paycheck - social security, state/federal tax) or will you take home the full $4,000 then pay tax on it when you file your taxes?

 

[WVUPharm2007]

I had this question come up today and I honestly don't know the answer because I've never been in this situation ( 🙁 ):

If a company gives you a $4,000 bonus, is that bonus taxed right away (like your usual paycheck - social security, state/federal tax) or will you take home the full $4,000 then pay tax on it when you file your taxes?

Depends on how you have it set up. When I got my bonus back in July, they taxed the hell out of it.

 

[DocB PharmD]

Just received my bonus a few weeks ago and was taxed at %50. Gotta love it

 

[Old Timer]

Just received my bonus a few weeks ago and was taxed at %50. Gotta love it

That of course is a true statement that is a lie.

Taxes were withheld, but that does not mean you will actually pay the taxes when you file your taxes next year. It will get added to the total income and you will be credited with the amount withheld.

 

[DocB PharmD]

That of course is a true statement that is a lie.

Taxes were withheld, but that does not mean you will actually pay the taxes when you file your taxes next year. It will get added to the total income and you will be credited with the amount withheld.

Yeah this is true. Thanks Old Timer

 

[Old Timer]

The ideal time to take your bonus is in the fall of the year before graduate. Let's say you are a student that works 20 hrs per week average while in school and graduating in 2009. and getting a 10,000.00 bonus.

20hrs/wk x $12.00/hr x 52 weeks/yr= $12,480.00 +$10,000.00= $22,480.00-$5,450.00 (standard deduction)=$17,300 of taxable income
you would pay $1,152.00 in taxes. If you had more than that amount withheld from your pay and bonus you would get a refund. That means your marginal tax rate on all of your income including the bonus is 5%.

Now lets fast forward. You work half the year as an intern and 1/2 the year as a pharmacist and you get the $10,000.00 sign on bonus

20hrs/wk x $12.00/hr x 26 weeks/yr= $6,240.00
40hrs/wk x $50.00/hr x 26 weeks/yr= $52,000.00
add your bonus and your income is $68,240.00
Subtract your standard deduction and your income is $62,790.00.
You would pay $9,148.00 in federal taxes and your marginal rate would be 15%.

So by taking the bonus in the year you graduate as opposed to the year before you graduate you would give an extra $1,000.00 to Uncle Sam.....

This assumes you are single and taking the standard deduction. Please don't think I'm doing this over for married people... It's similar.

 

[DocB PharmD]

Sorry guys I was thinking the annual performance bonus. I didn't realize we were talking about sign ons. I received my sign on 4 years ago and got it in the fall like Old Timer suggested. This was taxed at about 30%. Sorry for the confusion

 

[Vitamin K]

I know that bonuses are taxed. I guess what I'm trying to clarify is what the actual check would be. Would they get the full $4,000 upfront or would they get $2,800 upfront (assuming 30% tax)? I know it'll get taxed either way, but the question was about WHEN it would be taxed. Thanks!!

WVUPharm2007 - Can you elaborate a little on "how you have it set up"? Do you mean how you have your exemptions set up?

 

[Old Timer]

I know that bonuses are taxed. I guess what I'm trying to clarify is what the actual check would be. Would they get the full $4,000 upfront or would they get $2,800 upfront (assuming 30% tax)? I know it'll get taxed either way, but the question was about WHEN it would be taxed. Thanks!!

WVUPharm2007 - Can you elaborate a little on "how you have it set up"? Do you mean how you have your exemptions set up?

You can figure the net will be 40-60% of the gross depending on how your deductions are setup and what your state tax rate is....

 

[Vitamin K]

Thanks O.T. 🙂

 

[StaviZFingerZ]

I had this question come up today and I honestly don't know the answer because I've never been in this situation ( 🙁 ):

If a company gives you a $4,000 bonus, is that bonus taxed right away (like your usual paycheck - social security, state/federal tax) or will you take home the full $4,000 then pay tax on it when you file your taxes?

Most likely it'll get taxed 25% Federal, then FICA and State Tax...about 40%+

 

[pmmdx]

it should be about 40% tax. You only get 60% check. Also, you can avoid this by asking them to give you relocation reimbursement rather than bonus.

 

[charfdorn]

it should be about 40% tax. You only get 60% check. Also, you can avoid this by asking them to give you relocation reimbursement rather than bonus.

Also, you can claim nine exemptions for that one check only. This will help. Make sure you change back, though, or you gonna owe some serious money.