10/15/08

10k signing turns into 6k in the bank. What exactly is the reason for 40%?

Comments (21)

10/15/08

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.

The WSO Advantage - Investment Banking

Financial Modeling Training

IB Templates, M&A, LBO, Valuation +

IB Interview Prep Pack

30,000+ sold & REAL questions.

Resume Help from Actual IB Pros

Land More IB Interviews.

Find Your Perfect IB Mentor

Realistic IB Mock Interviews.

10/15/08

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

10/15/08

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

10/15/08

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%.

10/15/08

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.

In reply to coltsreign
10/15/08

The WSO Advantage - Investment Banking

Financial Modeling Training

IB Templates, M&A, LBO, Valuation +

IB Interview Prep Pack

30,000+ sold & REAL questions.

Resume Help from Actual IB Pros

Land More IB Interviews.

Find Your Perfect IB Mentor

Realistic IB Mock Interviews.

10/16/08
In reply to Password_Is_Taco
10/16/08

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.

10/16/08

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

10/16/08

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

10/16/08

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

10/16/08

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.

10/16/08

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.

10/16/08

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.

10/16/08

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

10/16/08

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.

10/16/08

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.

10/16/08

- 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!

10/16/08

What deductions did you put in?

In reply to Brady4MVP
10/16/08

To unlock this content for free, please login / register below.

  • Facebook
  • Google Plus
  • LinkeIn
  • Twitter
Connecting helps us build a vibrant community. We'll never share your info without your permission. Sign up with email or if you are already a member, login here Bonus: Also get 6 free financial modeling lessons for free ($200+ value) when you register!
10/16/08

What's Your Opinion? Comment below:

Login or register to get credit (collect bananas).
All anonymous comments are unpublished until reviewed. No links or promotional material will be allowed. Most comments are published within 24 hours.
WallStreet Prep Master Financial Modeling