Comments on: Why Are Bonuses So Heavily Taxed?

By: TL

TL — Sat, 21 Jul 2012 18:16:58 +0000

You think lawmakers use reason when they do this crap??? What planet are you from?

By: Mark

Mark — Sat, 03 Mar 2012 12:29:48 +0000

Not sure if this thread is still updated but I have a question. I’m a union employee and we worked for nearly 2 years without a contract. Once it was settled, we received our back pay. Our awesome govt. considers back pay to be a bonus, or supplemental which to me is BS. This is money that we were shorted for nearly 2 years. Anyways, I’ve heard that even though bonuses and such are taxed at a higher rate, is it true that once we file our tax return in the spring, we most likely get most of the withholding back because on a return its just like it was a considered part of our normal pay? If so, why does the govt tax this higher? I assume its so they can hang on to our money until we file for our return. Thanks

By: Kingsway

Kingsway — Wed, 20 Apr 2011 17:05:41 +0000

I have read the past few years posts here with great interest. I have been working on a project that pays commission. However, it has been 3 full years of NO INCOME. Now, the deal is about to close and I will receive a commission of around 450K. How do I structure this to ensure I do not pay 40% in tax. I have starved for these three years, paid all my own expenses to make this happen. should I set up an LLC or C corp and have it paid into that? Need some direction…if anyone has experienced this type of situation. Thank yhou.

By: Skip

Skip — Fri, 28 Jan 2011 17:31:43 +0000

One other comment. I do think it easy to get confused the fact that when you do your taxes everything evens out but the issue is that the heavy taxation really hurts when much of your pay is comprised of bonuses. I also think this law is a little unfair in that it really impacts those of us that are “employees” and this part of the inherent unfairness of our tax code and our country right now. Many people that are “contractors” or people who have their own business control completely how and when they pay their taxes. In addition they have so many b.s. right offs that I have seen people making $250k plus per year pay less in taxes than someone who makes less than half that amount. Again, I know taxes are necessary to make our society run but everything seems geared to helping people who already have a lot of money keep it and for those of us trying to make our way up down.

By: Matt

Matt — Thu, 20 Jan 2011 17:27:40 +0000

I am leaving my current company and part of the policy is that I get all remaining vacation time paid to me when I leave. I am a salary employee so it’s not like I would be working over 40 hours per week (ie – 1.5 x normal hourly rate) but I’ll receive it all on one check. Think that paid vacation will be taxed as a bonus? I work in IN but live in KY.

Thanks!

By: Alec

Alec — Sat, 25 Sep 2010 03:44:07 +0000

Its my money…….AND I WANT IT NOW.

By: Skip

Skip — Thu, 02 Sep 2010 02:26:03 +0000

Excellent article but unfortunately doesn’t ease the pain. I am in sales and my bonus/commission is actually more than my salary so I am always getting wacked hard with every pay check. And when your in a sales gig with a quota that is different every month it is very difficult to get a handle on how to accurately calculate deductions. I am by no means an anti tax guy but when your trying to support a family and you see almost half your check go to taxes every pay period it’s a little frustrating.

By: A Guy

A Guy — Fri, 30 Jul 2010 22:04:50 +0000

My salary is a joke… and I work 50+ hours a week busting my but for a larger year end bonus that gets paid in Feb the following year… when your bonus is $30-$40,000 and you lose $14-$19,000 in taxes… well, just the thought makes me sick. How am I supposed to ever pay off all my debits like this? Screw you uncle sam.. I busted my butt for it, let me have it!

How can I put that money in my pocket so I can finally be debit free?

By: Christopher Morrison

Christopher Morrison — Thu, 10 Jun 2010 01:37:40 +0000

Thank you for this article. I was wondering why the taxes were higher than normal on the bonus I received earlier this year.

By: Visitor

Visitor — Thu, 03 Jun 2010 20:21:33 +0000

No, this is confusing.

You start out talking about taxes but the problem is actually withholding.

Bonuses are not heavily taxed; they just look that way on a paystub. When you file your taxes on a 1040 or whatever, you will treat the bonus as income just like you will treat your salary or wages, etc.

Bonuses can, however, be subject to a high withholding rate, since many employers choose to withhold at 25% as authorized by the IRS.

So if you don’t have a high income (so your income tax rate is lower than 25%, probably much lower) and your employer uses the flat-rate withholding method (25%), you will be getting a large refund.

Of course, you want the money now, not next May!