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How are bonuses taxed in the USA?

How are bonuses taxed in the USA?

Old Mar 20th 2015, 10:25 am
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Default How are bonuses taxed in the USA?

Hello there,

I am curious, how are bonuses taxed in the USA? It's a timely question as I received a bonus this year in the UK (cue happy music) and then when I saw my payslip today (cue dramatic scene music) I was very sad to see that around 40% of it went to the tax man!!! I know this should not have surprised me - and it really did not as of course I am very accustomed to paying tax on just about everything . It just made me wonder if I would have paid the same % in the USA.
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Old Mar 20th 2015, 10:58 am
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Default Re: How are bonuses taxed in the USA?

As income.
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Old Mar 20th 2015, 12:33 pm
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Default Re: How are bonuses taxed in the USA?

Yeah, 40% sounds about right for a bonus.
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Old Mar 20th 2015, 12:36 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by jenninedinburgh
Hello there,

I am curious, how are bonuses taxed in the USA? It's a timely question as I received a bonus this year in the UK (cue happy music) and then when I saw my payslip today (cue dramatic scene music) I was very sad to see that around 40% of it went to the tax man!!! I know this should not have surprised me - and it really did not as of course I am very accustomed to paying tax on just about everything . It just made me wonder if I would have paid the same % in the USA.
the % is the same as any other income (so it varies by how much you have earned), that said depending on how much you earn and where you live your employer may withhold 50% or so, but you would get back anything you did not owe after filing your next tax return.
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Old Mar 20th 2015, 12:58 pm
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Default Re: How are bonuses taxed in the USA?

The deductions and taxes on my recent bonus added up to 53.25%, leaving me with 46.75% of the original amount.

In fairness, there were contributions to the usual pre-tax deductions (I.e. 401K, medical, dental, vision & transportation plans) and post-tax deductions (life insurances, etc.).

Taxes (federal, state and city tax (NYC)) kindly took the rest.
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Old Mar 20th 2015, 1:42 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by AlphaTangoMike
The deductions and taxes on my recent bonus added up to 53.25%, leaving me with 46.75% of the original amount.

In fairness, there were contributions to the usual pre-tax deductions (I.e. 401K, medical, dental, vision & transportation plans) and post-tax deductions (life insurances, etc.).

Taxes (federal, state and city tax (NYC)) kindly took the rest.
Over a number of years (in NC) it works out that both Mrs P and I receive 58% of our gross bonus award. Deductions comprise federal and state income tax and 401k contributions (with matching employer contribution on the much greater paycheck, meaning a 6% bonus on our bonuses! ), but as it is a "top slice", it is all taxed at our marginal tax rate.

@ATMike - aren't your medical, dental, transport, insurance etc. a fixed amount every month?
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Old Mar 20th 2015, 2:02 pm
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Default Re: How are bonuses taxed in the USA?

Thanks for the replies. Interesting. It appears that the tax man takes a lot in both countries.
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Old Mar 20th 2015, 2:13 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by Pulaski
@ATMike - aren't your medical, dental, transport, insurance etc. a fixed amount every month?
It appears as if the amount comes out of every paycheck (even the bonus paycheck).
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Old Mar 20th 2015, 2:17 pm
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Default Re: How are bonuses taxed in the USA?

In the US, employers will use one of two methods.
Percentage Method. A flat rate, normally 25%.
Aggregate Method. Calculated by adding your most recent paycheck and bonus together.
Taxes are treated as supplemental wages. The above methods of withholding only affect the WITHHOLDING, and not your tax liability when your tax return is due. Depending on your tax bracket, using the percentage method may well mean you owe the rest of the taxes at the end of the tax year.

In a nutshell, bonuses are taxed as supplemental wages, and the amount of tax you pay depends on your total annual income, and the tax bracket that 'extra' income falls in to.
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Old Mar 20th 2015, 2:35 pm
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Default Re: How are bonuses taxed in the USA?

No need to worry - these taxes help to pay the 14(?) trillion dollars of debt the US owes. I think the debt is getting bigger too. Then there's the government pension funding deficits. Better keep on working to pay that tax
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Old Mar 20th 2015, 2:48 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by AlphaTangoMike
It appears as if the amount comes out of every paycheck (even the bonus paycheck).
So you get a separate/additional paycheck with the only credit being your bonus?

I get paid my bonus as an addition to my regular two-weekly salary. So in all material respects I get an additional credit (the bonus), and incremental increases in percentage deductions (taxes and 401k), but the fixed deductions (medical, dental, transportation, insurance) are the same. Therefore by deducting my usual salary and usual deduction from the figures on my payslip that includes my bonus, I can calculate the incremental taxes and deductions as a percentage of the incremental credit (bonus amount). The figures float up and down, but over at least the last six years I have received an incremental cash credit of 58% of my gross bonus amount.
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Old Mar 20th 2015, 3:01 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by Pulaski
So you get a separate/additional paycheck with the only credit being your bonus?

I get paid my bonus as an addition to my regular two-weekly salary. So in all material respects I get an additional credit (the bonus), and incremental increases in percentage deductions (taxes and 401k), but the fixed deductions (medical, dental, transportation, insurance) are the same. Therefore by deducting my usual salary and usual deduction from the figures on my payslip that includes my bonus, I can calculate the incremental taxes and deductions as a percentage of the incremental credit (bonus amount). The figures float up and down, but over at least the last six years I have received an incremental cash credit of 58% of my gross bonus amount.
Correct, I get a separate paycheck with just the bonus figure (and the appropriate deductions). It's treated as 'supplemental' (I believe). Also, being in NYC, I get the added benefit of paying City tax.... which is nice. With a separate bonus paycheck, I'm able to see exactly what comes out.

The interesting thing was seeing the deductions for medical, dental, vision and transportation (all of which are higher than the usual bi-monthly deductions in my other paychecks). I'm still trying to work out why that is the case, especially for the transportation plan, as there is supposed to be a limit (I think in the region of $135 a month?), yet in this paycheck it was over $200.
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Old Mar 20th 2015, 3:05 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by AlphaTangoMike
Correct, I get a separate paycheck with just the bonus figure (and the appropriate deductions). It's treated as 'supplemental' (I believe). Also, being in NYC, I get the added benefit of paying City tax.... which is nice. With a separate bonus paycheck, I'm able to see exactly what comes out.

The interesting thing was seeing the deductions for medical, dental, vision and transportation (all of which are higher than the usual bi-monthly deductions in my other paychecks). I'm still trying to work out why that is the case, especially for the transportation plan, as there is supposed to be a limit (I think in the region of $135 a month?), yet in this paycheck it was over $200.
That sounds messed up, and it would be interesting to hear the rationale for deducting percentages for things that you would expect to be fixed.
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Old Mar 20th 2015, 3:10 pm
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Default Re: How are bonuses taxed in the USA?

mine comes in a separate paycheck but only has a fed tax deduction. this time it was about 32% which is i assume related to the tax withholding choices i made when i started the job.
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Old Mar 20th 2015, 3:20 pm
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Default Re: How are bonuses taxed in the USA?

Originally Posted by MsElui
mine comes in a separate paycheck but only has a fed tax deduction. this time it was about 32% which is i assume related to the tax withholding choices i made when i started the job.
It is been a long time since I have worked in the USA. By 'choices' do you mean 'Married' 'Single' etc - or is this something else?
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