New Tax Law - how if affects bonuses

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Here's a question that may affect most on this forum:

The current federal tax laws assess a flat tax on bonus income, which is highly annoying because that is a large chunk of my yearly compensation. How does the new tax code affect this? Will we get to take home a larger portion of our bonuses next year? I'm sick of getting screwed out of 25-35% of my bonus.

Comments (26)

 
Best Response
Dec 22, 2017 - 1:46pm

Bonuses are ordinary income for tax purposes my friend. Most companies just do a 25%-35% tax rate because their payroll software sees a check for that amount and annualizes your income based on your bonus for that payment period. So when tax time comes, if you are in the 22% tax bracket and you paid 25% you overpaid into your taxes, and you’ll be refunded come tax time.

 
Jan 6, 2018 - 6:42pm

This is why really rich people work for themselves. You don't get rich (except in rare instances) working for someone else.

The tax rate of a business owner is a small fraction of what W2 worker make.

 
Jan 2, 2018 - 5:13pm

I think the 25% is less than the old way. My bonus this year was taken out at, like, a 40% rate. I'm generally in around the 33% bracket, net across the year.

Array
 
Jan 2, 2018 - 9:33pm

If you want to take home more of your bonus, check w/ your payroll dept to see how they handle bonuses. Many use the "supplemental rate" of 25% as others have mentioned, but a lot of times you have the option to use your normal allowances as specified on your W-4 instead (either method is fine from the IRS's perspective as long as your bonus is <$1mm).

If they will let you use your allowances, figure out how many allowances you need to hit your target after tax number by using page 44 of IRS Publication 15. Submit a new W-4 prior to bonus time (don't forget to change it back afterwards) and enjoy the extra cash.

 
Jan 5, 2018 - 9:30pm
I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
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