Taxing holiday bonuses - how does this work?

[92saturnsl2]

For those that received some type of holiday bonus this year-- does your company deduct tax from it?

I've always thought it was odd that some places I've worked for have issued it just like a regular payroll check with all the usual deductions and taxes taken out. While other places I've simply gotten a check cut with nothing else taken out, much like you would if you were a 1099 employee or vendor/subcontractor.

The current place I work (been there two years now) gives a company check with no deductions at all, but the check stub is noted "small tool reimbursement." No idea what tools they're reimbursing me for (must be some expensive small tools), but I'm actually very glad they do this, especially this year, as that extra amount if applied to my YTD wages I'm pretty sure would send me into the next tax bracket, quite possibly for a net loss. I suppose a tool reimbursement could be a half truth as many employees do furnish their own tools that other companies I've worked for supply at no cost. Is this some sort of scheme to avoid taxes being applied, or is it up to the business's own discretion whether or not to tax?

 

[Leo99]

Doesn't really make a difference come April 15th. Although, reimbursement for a phantom expense avoids the tax man, it sounds illegal.

 

[rshaw125]

I would not be broadcasting what your company is doing.

 

[92saturnsl2]

Originally Posted by rshaw125
I would not be broadcasting what your company is doing.


I'm no expert-- just curious if this is a spurious tax practice, that's all. Not MY company either.

 

[opus1]

My company doesn't do Holiday bonuses but we do get an incentive in the spring. In the past employees used to be able to adjust their withholding so they received more of the payout, although as noted earlier, come April 15 it all gets paid anyhow...but about 3 years ago they stopped allowing that sort of adjustment and they take a flat 30% out of the check for taxes.

 

[JLTD]

If it's a normal check, it's taxed at whatever rate you'd be taxed for that check. Reimbursements are not taxed, as you paid out of pocket with after-tax money.

 

[StevieC]

I've always been taxed on holiday bonuses. Our tax system is similar to yours. The one I received this year had normal deductions taken out of it as though they paid me commissions or regular pay.

I prefer this because then I don't have to withhold money to the end of the year and pay the taxes when I file.
(No cheating for me because the consequences aren't worth it.)

Merry Christmas / Happy Holidays!

 

[Donald]

If your company gives you money and its not a reimbursement for out of pocket expense, then its normal income and will be taxed. Call it whatever you want.

I think they could give you an item of nominal value (up to $25 maybe) and have it not taxed.

 

[WagonWheel]

Not sure about your situation but the IRS can still charge you with tax fraud/evasion even if you didn't directly participate but ultimately benefited from it. In other words, if you should have known it was not above board you can be found guilty. Again not sure about your case.

Bonuses are usually withheld at at higher rate but is usually treated as ordinary income for tax filing purposes.

https://blog.turbotax.intuit.com/in...s-are-taxed-and-treated-by-the-irs-8003/

 

[ArrestMeRedZ]

You have a misconception of the cost of being bumped into a higher bracket. Only the amount above the lower bracket is taxed at the higher rate. If you make more money, your net is going to be more.

 

[CharBaby]

My company bonus checks were usually taxed between 42%-48%. They're not a payroll check.

 

[Leo99]

Originally Posted by ArrestMeRedZ
You have a misconception of the cost of being bumped into a higher bracket. Only the amount above the lower bracket is taxed at the higher rate. If you make more money, your net is going to be more.


Indeed. You can't have a net loss by making more money.

 

[miden851]

Nominally, they tax it at 40% but not every company...

however it doesn't matter since on April 15 you'll be paying actual tax vs nominal amount

 

[Convert]

Bonuses are taxed at a higher rate.
It's considered reward for servicers.
Earned income is taxed at lower rate.

Someone else can expand my responce if needed

TOMB

 

[Leo99]

Originally Posted by Convert
Bonuses are taxed at a higher rate.
It's considered reward for servicers.
Earned income is taxed at lower rate.

Someone else can expand my responce if needed

TOMB


The withholding might be higher on a bonus. Bonus is not taxed at a higher rate. It's all the same come April 15th.

 

[92saturnsl2]

Originally Posted by Leo99
Indeed. You can't have a net loss by making more money.


Sure you can, in a roundabout way at least. I know a lot of folks that have zero ambition or desire to get a better paying job because they will lose $ in food stamps, free health care, free daycare, etc. To each their own.

I do get what you're saying though-- I thought you were lumped into X tax bracket depending on input, but I see now that it is a marginal rate which is good to know.

 

[2strokeNorthstar]

The ignorance of some people makes me so irritated. You don't make less by getting a bonus. Why do you not want to pay taxes so bad that you don't want to work? Then complain about government services, roads or whatever. I hear this at work constantly. I'll take overtime, bonuses or whatever I've never seen a negative profit from working more. Rant over
iRS requires ALL cash or cash equivalent gifts to be taxed. Whether or not your employer does is their problem. Not and excuse. I recommemd not posting what you do online.

 

[Skippy722]

My company used to issue it on a paper check with all required taxes taken out, but not insurance or 401k. This year they're switching to direct deposit, but same thing... I'll get my normal paycheck, then bonus, as 2 separate deposits. All taxes will still be taken out.

 

[DuckRyder]

https://www.irs.gov/businesses/employee-tool-equipment-plans

 

[slacktide_bitog]

Bonuses are supposed to be taxed just like your regular salary (or hourly). You should basically never get both a W2 and 1099 from the same employer

If you get a separate 1099 for the bonus, file a form 8919 when doing your taxes, and select reason code H