3/1/10

I just got my signing bonus a little bit ago and 10k turned into 5.6k... When did I get in the 44% tax bracket?

I could have sworn my friends who are a year older received 6k-7k from their 10k signing bonus?

any insights?

Comments (108)

3/1/10

bonuses are taxed pretty heavily compared to regular salary and 5.6k sound about right for a 10k bonus

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3/1/10

But a lot of that comes back next April right?

3/1/10

Signing bonuses are taxed at your marginal rate. The reason you get so much less right now is because most banks withhold at the highest (or at least a high) tax rate because the idea is that you're not surprised with a large tax liability at the end of the year due to your signing bonus.

Source: I just did my taxes and my signing bonus was taxed at my marginal rate. Wohoo for getting my signing bonus early!

3/1/10

Why is that the case? Anyone know where can I read about how taxes are applied to wages (salary, bonus)? I've heard year end bonuses are torn apart, but why does that happen? It's not just tacked on to income for the year?

3/1/10

I'm not sure, but what I thought was that the system takes your paycheck, multiplies it by the number of times you get paid a year by your company, and uses that as your annual gross income to tax.

ie for a 10k signing bonus (assuming you get paid biweekly), it assumes 240k as your annual income, which puts you into the 33% bracket. Add SS, medicare blah blah blah and you get your 44% or so. Again, I'm not sure if this is right, just what I've assumed

3/1/10
zer0zero:

I'm not sure, but what I thought was that the system takes your paycheck, multiplies it by the number of times you get paid a year by your company, and uses that as your annual gross income to tax.

ie for a 10k signing bonus (assuming you get paid biweekly), it assumes 240k as your annual income, which puts you into the 33% bracket. Add SS, medicare blah blah blah and you get your 44% or so. Again, I'm not sure if this is right, just what I've assumed

You hit the nail on the head. The computer does not read it as a bonus, it reads it as a a normal paycheck and not a one off event.

Checkout www.paycheckcity.com. They have free calcualtors that will give you a pretty good idea of where you will end up after taxes.

3/1/10

That sounds right. I'm not 100% on this, but your bonus (signing and year-end) would go on your 1099 form as Supplemental Income which should be taxed at your marginal rate.

3/1/10

how does it work if I received my 10k bonus in full? They sent me a letter saying that taxes would be withheld on my first paycheck in July. Can I claim it as 2009 income (I received it last december) and qualify for the lowest tax bracket so I can get a large refund in 2010?

3/1/10

If you received it in 2009, I'm pretty sure you can claim it as 2009 income. I received mine in November and that's what I did.

3/1/10

You'll get a lot back especially as a student. aprx 2000-2500

3/1/10

You'll get a lot back especially as a student. aprx 2000-2500

3/1/10

Forgive me since I am new to tax withholding and refunds in practice....

so I claim 10000 as income for 2009, and when 2010 comes around i submit the 1099 which states that I had taxes withheld on that 10000. Since I already paid the taxes in 2009, I will be receiving the full amount withheld correct? So say I pay $3000 on the 10k in 2009. I will get back the full $5000 that is withheld in 2010 (hypothetical numbers)?

Thanks guys.

3/1/10

One of my roommates received $6200 from an original $10k signing bonus. Strange how you received less than he did.

3/1/10

Had some friends at lower bb's like ubs/wf got their 10k turned into around 6k. This sounds right. You don't get that much back, someone correct me?

3/1/10

If you claimed the 10k in 2009 as income, then you would not claim the 10k in 2010 as imcome. Therefore, they would not take taxes from that in 2010.

3/1/10

My bonus got taxed even lower! I got 5.3k today :( FML

3/1/10

For analysts already working, is 5.3k enough to move to the city? Here's my mental breakdown of my use of funds:

$3,000 for 2 months rent deposit
$500 plane ticket
$1000 new wardrobe
$500 furniture, appliances, bedding etc
$300 random stuff like cabs, meals etc

Am I missing anything? How did you guys survive until you first paycheck?

12/16/10
BFOX:

For analysts already working, is 5.3k enough to move to the city? Here's my mental breakdown of my use of funds:

$3,000 for 2 months rent deposit
$500 plane ticket
$1000 new wardrobe
$500 furniture, appliances, bedding etc
$300 random stuff like cabs, meals etc

Am I missing anything? How did you guys survive until you first paycheck?

That's a low estimate for furniture, bedding etc.

3/1/10

Thanks for the responses. I had heard the computer payroll multiplying reason before, but I wasn't sure if it was true.

This was for a BB's NYC office.

3/9/10

Mine came back same 44%. Not pleased, I'm wondering if we will be getting a stub in the mail to see the breakdown of federal/state etc.

12/15/10

Sorry, still a little confused, hoping to get some quick help/understanding.

My marginal tax rate for the year will be 15%. I just received my $7,000 bonus and it was taxed at 35%. Will I basically receive that 20% difference in my tax return ... so $7000*(.35-.15) = $1,400.

Am I thinking about this correctly? Thanks WSO.

12/15/10

PE - that sounds somewhat right. I received close to $4K in my first year b/c I really made close to $40K (started in the summer and had no job in H1), but my withdrawals assumed I was making closer to $150K.

I think this is one of the biggest misconceptions about bonuses in IBD - that they are anything like the bonuses in AM or whatever and that they get taxed at a higher rate. And they're not, they're treated either as supplemental or as regular income.

12/15/10

PEsomeday, your math is correct. However, realize that you will also be subject to Social Security, Medicare, and state taxes. So, be sure to include all of those components when you calculate your marginal tax rate.

Also, for extreme clarification: Your bonus wasn't taxed at 35%, it was "withheld" at 35%. Think of withholding as "estimated taxes" and at the end of the year you true everything up.

CompBanker

12/15/10
CompBanker:

PEsomeday, your math is correct. However, realize that you will also be subject to Social Security, Medicare, and state taxes. So, be sure to include all of those components when you calculate your marginal tax rate.

Also, for extreme clarification: Your bonus wasn't taxed at 35%, it was "withheld" at 35%. Think of withholding as "estimated taxes" and at the end of the year you true everything up.

Correct me if I am wrong here but, at least in my state, you should be able to deduct some portion of those state taxes from your federal...not sure if this is true everywhere but that would effect your EOY total as well...

If I had asked people what they wanted, they would have said faster horses - Henry Ford

12/16/10

That's an exceptionally low figure for furnishing your own place. That wouldn't get you half of what you need, even shopping like you're on a student's budget (me) at IKEA over in Brooklyn.

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12/16/10

When I moved to a new city, I purchased 1 desk and 1 sofa for $1,200 (and I haggled my way down). If you truly are starting with nothing, you'll need a LOT more than $500 just for furniture (if you're actually getting real furniture).

CompBanker

12/16/10

I don't see how a normal college student coming out could really justify spending $2k on furniture granted your never going to be there.

I have an ikea bed frame $140 that I've used for two years, Table $60, TV Stand, $40, comfy chair $50, and I got two huge dressers $50 each, cheaper if you find deals in the As IS section.

You can also go on craigslist furniture for some sweet steals if people are moving out.

I guess if your an associate/settling down into a place having nice furniture matters more, but considering I'm going to be moving around I would rather carry a lighter load that I don't mind breaking.

12/16/10

is 6k after taxes

12/16/10

I was told that it is 6k after taxes but if you get the signing bonus more than six weeks before you will get the full 10k and the taxes will be deducted later...no idea if this is actually true as I have yet to receive my signing bonus but this is what someone told me from a comparable BB.

12/16/10

tax is 40% so your initial sign on was 12500 if you'll net 7500.

12/16/10

how does this computer for summer signing bonuses? Just 1/4 of the $6-7.5k ? Thanks.

12/16/10

never heard of a summer signing bonus.
Has anybody got them?

12/16/10

2k

12/16/10

Summer "bonuses" range from 1k - 4k and are typically called "housing allowances".

  • justanotherbanker
  •  12/16/10

If they withhold 4k from your 10k relocation allowance (aka signing bonus), you will probably be able to reclaim almost 2k next year when you fill out your tax returns. The exact refund will depend on your specific tax situation (401k, if you itemize, if your parents claim you as a dependent, etc).

12/16/10

i got something like 6,735. so right around 33% to papa-Sam. they bone you on those bonuses......

12/16/10

How can your parents still claim you as a dependent when you're already working?

12/16/10

^ you get the bonus while you're still in college.

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12/16/10

they'll withhold at way too high a rate and when you file your return next april, you'll get a large chunk of what's withheld back.

12/16/10

40% of that will go to the taxman. Depending on how many allowances you put, you may be withholding too little or too much. Go to irs.gov and use their calculator.

401K withholdings also affect that, make the most of this.

If you're a trust fund lucky one, then the dividends and interest received will also have an effect (while not substantial) if you're trustor hasn't paid enough taxes on a quarterly basis.

12/16/10

I am filling out a w-2 standard 22 single male. How many allowances should I have?

12/16/10

0

12/16/10

If you do not live in New York, you should not be paying the New York state tax on your signing bonus. I talked to my tax adviser and I was able to get that money back ($735). Just got the check in the mail.

12/16/10

alos, what rate is the signing bonus usually taxed at?

12/16/10

Is this the US we're talking about here? If so, signing bonus is withheld at the same 40% rate as all the rest of your cash comp, and taxed in whatever year it was paid in as income.

12/16/10

so let me get this clear do i get that full bonus in one check and then just pay 40% on it next april?

12/16/10

Your bonus checks will be 40-45% lighter off the bat. Depending on how well you set your exemptions, you may or may not get back some of that in April.

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12/16/10

Another way to get around the higher tax rate on your signing bonus is to file a w-4 with your company immediately after your signing bonus is paid out. This will allow you to keep more of your regular pay checks instead of having to wait for a refund check next april for the difference.

12/16/10

Because big bonuses might push you over to the next income bracket, and companies make sure they withhold enough taxes from your bonus to pay the IRS.

If you're doing your taxes right, you should be getting part of it back come tax time.

12/16/10

arent all bonuses taxed at 50% regardless?
check the tax laws.

12/16/10

Because being wealthy is evil and paying taxes is patriotic. Someone else who got B's and C's in high school can use that money to buy an iPod. You already have an iPod so obviously it is only fair you give your extra money to those people who don't have them. Obama '08

12/16/10
GordonGecko:

Because being wealthy is evil and paying taxes is patriotic. Someone else who got B's and C's in high school can use that money to buy an iPod. You already have an iPod so obviously it is only fair you give your extra money to those people who don't have them. Obama '08

I'll have to save it.

12/16/10

Signing bonuses are consdiered lump sum payments which means they are withheld at 25% federally. Social Security is another 7.65% and New York State is 7.35%. If NYC tax was withheld it would be another 4%.

12/16/10

got it. thanks!

12/16/10

Crap, I had no idea they were taxed at a higher rate. I guess I'll have to revise my apt budget or just keep my fingers crossed the NYC real estate market continues to free-fall through next year.

12/16/10

GordonGecko - hilarious.

12/16/10

Because its taxed at an annualized rate. $10,000 when you are paid every two weeks is annualized to $240,000 a year

12/16/10

stevebn, I thought there were more than 48 weeks in a year?

I wouldn't worry about how much they are going to withhold. At the end of the day you will pay the appropriate taxes and it ends up being a wash. Yeah, it sucks that you withhold more now and get part of it back later, but it usually amounts to only $500-$1,000 or so.

~~~~~~~~~~~
CompBanker

CompBanker

12/16/10

I bet you guys can hardly wait to vote for Obama so that your capital gains rate will be as ridiculous as the tax on short term gains/bonuses. I cant wait to buy more lazy ass people ipods for the all the kids they shouldnt be having

12/16/10

If you guys think it's bad, wait until Obama becomes president and "spread the wealth around." I still can't believe so many wall street people are supporting Obama and his socialist agenda. We bust our butts off, and Obama wants to take our money and give it away to welfare queens in harlem or south side Chicago who keeps pumping out babies. That's Obama's vision of change. No wonder he's so popular in socialist Europe.

12/16/10
jjc1122:

If you guys think it's bad, wait until Obama becomes president and "spread the wealth around." I still can't believe so many wall street people are supporting Obama and his socialist agenda. We bust our butts off, and Obama wants to take our money and give it away to welfare queens in harlem or south side Chicago who keeps pumping out babies. That's Obama's vision of change. No wonder he's so popular in socialist Europe.

mo money mo problems

12/16/10

stevebn, I thought there were more than 48 weeks in a year?

I wouldn't worry about how much they are going to withhold. At the end of the day you will pay the appropriate taxes and it ends up being a wash. Yeah, it sucks that you withhold more now and get part of it back later, but it usually amounts to only $500-$1,000 or so.

Don't be a smart ass. You got the idea, you get paid 2x a month; which is about every two weeks.

12/16/10

People, if you don't have the correct answer don't respond the the post.

Bonuses are NOT taxed at a higher rate. Income is income...period, of course with the exception of capital gains. As another posted stated, the reason it's taxed at a higher rate is because it assumes you are in a higher tax bracket (this is probably for simplicity of the HR/Payroll department). When you do your tax return you will list all your income for the year and then will most likely get a tax refund because you overpaid.

I repeat you are not taxed higher on your bonuses. Everything will work itself out once you do your taxes.

Think of another example, if you had a summer internship and madd 15K, you were taxed at a rate of 60K, but once you do you tax return you will get the vast majority of your taxes back as you only earned 15k for the year.

12/16/10

McCain fucked up when he picked Palin to be his VP.

He should have picked Romney, even though he hates him, or Lieberman, but of course he could not, because that would not go well with the right-wing anti-intellectual Bible-Thumping lunatics that have infected the Republican Party.

I refuse to put that crazy, dumb bitch Palin anywhere near the Oval Office when McCain, a 72 year old, has a history of cancer

12/16/10

i don't like Palin either; personally, i would've loved romney or bloomberg but knew the latter was just a pipe dream.

nonetheless, i still would rather have Palin as VP than have a radical socialist like obama as my president.

12/16/10

Withholding income for taxes is such a crock of shit. If the government is going to require this, we should at least get 5% interest on that money for opportunity cost.

Take it for all it's worth.

12/16/10

- increase the number of allowances on your w-4. it adds up. most people dont realize that withholdings can be adjusted depending on claimed allowances. allowances reduce the amount of federal taxes withheld from your paycheck. each one is worth ~$3,500 in annualized 1040 deductions. technically, the number you choose should depend on itemized deductions and dependents, but i managed to get mine up to 3 without breaking a sweat. just make sure payroll doesnt have you in at 0. thats max.

also generally speaking...dont forget that its better to owe uncle sam money at the end of the tax year than vice versa. i.e, why give the government a interest free loan when you can claim one for yourself? dont get overzealous tho, if you owe over a certain amount in relation to your income, unc will charge you interest. doesnt work in reverse tho. aint that some ish.

- and the other thing: make sure whatever discretionary deductions you have on your paycheck (401k, etc) are adjusted down, temporarily frozen or canceled a few weeks before your bonus hits. the only thing worse than 40 being reserved for uncle sam on the spot, is expecting a certain number after that only to realize it got redistributed into other places that you cant touch. doh!

12/16/10

What deductions did you put in?

12/16/10

Obama wants to create a "bonus tax rate" and make it 80%. What kind of devil worshiper would accept his full signing bonus anyway?

12/16/10

I asked, if you have been with the company before as an SA or whatever you will receive your bonus with the taxes withheld. But if your new to the company you will get the full 10k and the taxes will be split up between the paychecks your receive for the rest of the SAME year.

You give me a gift? *BAM* Thank you note! You invite me somewhere? *POW* RSVP! You do me a favor? *WHAM* Favor returned! Do not test my politeness.

12/16/10

i want a signing bonus... can't wait to get out of college!!!

12/16/10
turtles:

i want a signing bonus... can't wait to get out of college!!!

Worry about getting the offer first, thats the hard part.

You give me a gift? *BAM* Thank you note! You invite me somewhere? *POW* RSVP! You do me a favor? *WHAM* Favor returned! Do not test my politeness.

12/16/10

^heh... sigh... to be young

12/16/10

not much...and it just counts as compensation, so it's not treated in any special way. When I was a first year analyst at GS, all said and done, I think I got back around $2000 in April of the first year of my being at work. Obv everyone's situation is different, but that seemed to be a good average.

12/16/10

Wow thats really sad that they do not. I know when my bank gave me my signing bonus, they paid taxes on my behalf. So when they told me what the bonus was, thats was the final number post-tax. I assumed most banks did it this way, I guess I was mistaken then.

12/16/10

TeddyTheBear:
Wow thats really sad that they do not. I know when my bank gave me my signing bonus, they paid taxes on my behalf. So when they told me what the bonus was, thats was the final number post-tax. I assumed most banks did it this way, I guess I was mistaken then.

Sounds like a loophole that works in their favor.
12/16/10

TeddyTheBear:
Wow thats really sad that they do not. I know when my bank gave me my signing bonus, they paid taxes on my behalf. So when they told me what the bonus was, thats was the final number post-tax. I assumed most banks did it this way, I guess I was mistaken then.

this was how i got my signing bonus as well, 10k on the dot after taxes

12/16/10

I have a question along these lines maybe one of you guys can answer... I am a first year in Chicago, but I had training in NY for my BB so I paid taxes there this summer. I started to file my return last night, but NY is saying I owe taxes for all of the money I have made since moving back to Chicago even though I paid taxes in Illinois for it. This can't be right can it? Can I really owe NY over a grand in taxes for the money I earned in Chicago and paid full taxes on already?

I would agree with you, but then we'd both be wrong.

12/16/10

rogersterling59:
I have a question along these lines maybe one of you guys can answer... I am a first year in Chicago, but I had training in NY for my BB so I paid taxes there this summer. I started to file my return last night, but NY is saying I owe taxes for all of the money I have made since moving back to Chicago even though I paid taxes in Illinois for it. This can't be right can it? Can I really owe NY over a grand in taxes for the money I earned in Chicago and paid full taxes on already?

No. You'll have two state returns (one for each time period) and one federal return. Now getting those bureaucratic a-holes in NY to understand your situation may require jumping through some hoops, but you definitely don't owe NY taxes for time you worked in IL.

12/16/10

Double-check me on this, but if you are a recent graduate and were in school at least 5 months of the year (graduated in May), you still qualify as a full time student which helps beef up the return a bit.

12/16/10

You can just turn up your allowances if you feel like. When my annual bonus gets ripped to shreds by taxes, and I know i'll get lot of it back, I just move my paycheck allowances to 3 and collect a higher paycheck through the year.

12/16/10

Under proposed Obama executive orders, you will owe the government another $10,000.

"They are all former investment bankers that were laid off in the economic collapse that Nancy Pelosi caused. They have no marketable skills, but by God they work hard."

12/16/10

YES, you get a majority back via tax return, almost all of it actually.
No matter what your income is the bonus is initially charged ~25%, as supplemental income

However, when you start your first year in June and by the time you file your tax return you would of only worked half a year. The IRS is taxing your bi-weekly salary with the assumption that you will be making 70k a year (higher bracket). However since you only worked half a year you only end up making ~35k (assuming a 70k base) + 10k= 45k for the year. This puts you in a very low tax bracket... lets say that tax bracket pays 10% for the year (assumes straight 1040EZ, no itemization/deduction, etc)... thats the difference you make up and why you get a much higher return

12/16/10

theworks9:
However since you only worked half a year you only end up making ~35k (assuming a 70k base) + 10k= 45k for the year. This puts you in a very low tax bracket... lets say that tax bracket pays 10% for the year

Will this be affected by year end bonus though? Or is that counted separately?

12/16/10

The above pretty much nailed it all. You usually get some back, depends on what you file as.

12/16/10

Theworks is pretty much spot on.

The thing that you guys need to realize is that net-net bonuses aren't taxed any different than regular income. There is a large amount of withholding when you get the bonus, but at the end of the year it's regular income taxed at your normal tax rate. There is no section on your taxes to get part of your bonus back.

At the end of the year if you look at a ridiculously simplified example it basically works out to (income * tax rate) - taxes paid. In that simple equation income and taxes paid are treated the same whether they came from salary or bonus.

Roger, you need to file a multi state return. Not meaning to be offensive, but given your question you could probably use a little help. I use a guy in the suburbs who's really affordable, but I know a few in the city as well. PM me if you want a reference.

12/16/10

you farkers really need a course in taxation.

12/16/10

Your bonus might be "net of taxes", tax already taken care of. Basically on paper you're given whatever you need to make your bonus $10k after taxes, and in practice you get your $10k.

12/16/10

I just received my signing bonus from a BB and received the full 10k. It was technically an advance, and will added to my first four paychecks. Basically my first paycheck will say something like 5500 (3000 for 2 weeks and 1/4 of the 10000) although I will not receive the 2500 because I got it already. The taxes will be withheld on the first paycheck, so I actually will receive far less than 2000 after tax for that paycheck. Does that make sense? I doubt that the firm would pay taxes for you, but I could be wrong.

Basically, ask HR. Included with my check was a clarification and a number to call if I had questions.

12/16/10

It isn't earned income until you start bro

12/16/10

PM is correct, but you might be able to get your bank to issue you the W2 for the previous year and then re-do your taxes a year back. Just a thought.....

12/16/10

Unless there's some technicality behind it, I would imagine in 2013.

12/16/10

Calm down.

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