Accepted Answer

Hello XXXXXXXXXX,

Your understanding is exactly correct.

Your actual tax liability cannot be determined until the end of the year when there is a final tally of all the income you earned.

As you earn money each week or every other week through a job, the payroll programs are designed to tax your checks based on the assumption you will be earning that same wage every week or every two weeks. If that turns out to be the case, then chances are at the end of the year, the taxes that were withheld will be close to what you actually owe.

However, in cases where one time bonus payments are issued, they are taxed at a special rate of 25% for federal tax. Normal state rates would still apply. But at the end of the year it will still be your overall income that actually determines how much tax you are liable for, and if could end up that you actually owe more or less than what was withheld.

If you were to receie a one time bonus payment of $20,000 and it was taxed at 25% federal tax, if that ended up being your only income for the year, you would likely get most if not all of your tax back at the end of the year.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you XXXXXXXXXX.

Expert:	Merlo
Pos. Feedback:	99.8 %
Accepts:
Answered:	9/16/2009

Accountant

25+ years tax consulting. Specializing in returns for US citizens living abroad