Signing Bonus Taxed @ 37.75% - WHY?
Received my $10k signing bonus last week, was surprised when it was taxed at 37.75% - can someone explain this to me? Will I get a substantial amount back on my tax return?
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Bonuses are WITHHELD at a higher rate but are added to your AGL and taxed the same as your other income.
Long story short, you will be receiving some of that back in your tax return.
What's AGL stand for? Thanks for the insight
Apologies — meant AGI. Stands for adjusted gross income.
Do banks allow for special tax withholding settings on a bonus paycheck?
Typically yes at least at my bank. We get a form ahead of bonus season to say what we want our bonus to be withheld at with a min of 25%. I typically set mine at my marginal tax rate.
There seems to be a super basic financial literacy and/or tax question at least once a week in this forum. This is amazing considering most people here have taken 3-4 years of university level finance and accounting. How are there not university classes that teach financial literacy? Would be 100x more useful to a college student’s long-term life than half their bullshit finance electives.
Completely agreed. The media is part of the problem though by making blanket statements claiming that people's tax rates are going to increase / decrease to x% - no they're not not, it's the marginal tax rate, not an overall rate. Just bullshit spins for more views. I mean I get it, a headline screaming that tax rates are going to be 40% (or whatever #) is more clickable than saying that income in a certain band is going to be taxed at 40% and that the tiers below may not vary much at all.
Do you know if you can request that your bonus be withheld differently compared to your normal paycheck? If I know my marginal tax rate is going to be 24% can I tell payroll to only withhold the bonus at that number? Or is it a function of the system they use that they can only do the top bracket 36% because the system assumes you make that each paycheck.
Another question, can you counter this throughout the year by claiming extra allowances to get more money on each base paycheck because you know your bonus will be over withheld?
You generally can't ask payroll to only deduct a certain amount, though there may be some nuance here that I am unaware of.
Regarding your second question, this is typically the way it's done so as to not get a tax refund (giving the government an interest free loan). It should be trivially easy for a banker to create an excel spreadsheet to estimate annual federal (and state/local for that matter) tax liability after accounting for standard deduction, 401(k), healthcare, IRA and/or any other potential deductions and credits (including, but not limited to, dependent care, FSA, HSA, child tax credits, etc.). I actually have a spreadsheet where I forecast my next three years accounting for all items including SS and medicare, under the assumption I stay in banking. By having a good estimate of your EoY liability, you can claim additional allowances for each paycheck throughout the year and pay very close to what you'll actually owe.
Edit:
Misunderstood your comment initially - personal finance was not offered at school I went to.
As a finance/accounting major from a target, it is ironic how few people seem to have a solid grasp of personal finances (myself included). Even though our school offers finance classes, not a single one deals with personal finances/spending which is unfortunate.
I studied finance and personal finance wasn't dealt with at all. Not even an explanation how a credit card works.
Wait until u move to nyc then it’ll be 47%
Welcome to the world, buddy.
Get used to it. You'll get taxed at 40% on your bonus and then you'll likely owe a bit more after you file your taxes. Uncle Sam loves Wall Street.
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