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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 17223
Experience:  10 years experience
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A bonus was written into contract and I complete the task for

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A bonus was written into contract and I complete the task for said bonus. The agency I work for then calculated how much taxed would be taken out. They then put the amount that they calculated it to be after taxes and placed that in my paycheck to be taxed again. Should they have placed the full amount of the bonus into my paycheck? Or are they correct in figuring out the taxes first and then me getting taxed again in my paycheck?

Wallstreet Esq. :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati

Wallstreet Esq. :

It would the proper way to receive a bonus,

Wallstreet Esq. :

the employer will take out the taxes first,

Wallstreet Esq. :

Typically the bonus will be taxed at a higher percentage than regular wages as well

Wallstreet Esq. :

The IRS specifies a flat “supplemental rate” of 25%, meaning that any supplemental wages (including bonuses) should be taxed in that amount. If you receive a $5,000 bonus, under this rule, $1,250 (25% of $5,000) goes straight to the IRS. Using this approach, the amount of your bonus – whatever it is – is “singled out” from the rest of your income and taxed directly. Employers frequently choose the percentage method because it’s easy and mindless to tax the entire bonus at a uniform rate.

Customer:

So if they already figure out the taxes prior to adding it to the paycheck. Should a separate check have been written instead of the money added to my paycheck and getting taxed again?

Wallstreet Esq. :

They can do this, however they should have issued you a separate check,

Wallstreet Esq. :

Unlike the much simpler percentage method, they used the aggregate method, which is when your employer adds the amount of your bonus (say, $5,000) to your most recent regular paycheck. Then, they determine the normal withholding amount based on IRS withholding tables for the sum of both amounts, subtract what was already withheld from your last paycheck, and withhold the rest from the bonus amount.


The problem with this approach is that instead of being taxed at a flat 25% – and having that 25% rate apply only to the bonus amount – you get taxed at what is almost certainly a higher rate on thecombined amount of your normal pay and the bonus. The result: a higher overall tax obligation for the same amount of income.

Wallstreet Esq. :

You should be able to recoup some of the difference when filing your tax return

Customer:

So the bonus was for 2,500. If they only place 2,000 into the paycheck because they stated that they was what they figured out I would receive after taxes. How would the 500 missing be noted on my tax return if the whole 2500 wasn't placed in the paycheck?

Wallstreet Esq. :

the 500 would be part of your w2 at the end of the year,

Wallstreet Esq. :

and you would list $2500 as supplemental income

Customer:

Okay thank you.

Wallstreet Esq. :

If you have any further questions please do not hesitate to ask.

Wallstreet Esq. :

If satisfied please provide us with positive feedback, thank you

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