Signing Bonus Tax Question

[evilnewbie]

I received 25k in a signing bonus but don't know what taxes I am suppose to pay. Total household income (2 + 1 kid) is 156k... I don't think the company paid any taxes... help! I heard all bonuses are taxed at 33% plus state income tax which is 6%... does that mean I should hold onto about 10k for taxes at the end of the year?

 

[MasterBlaster]

Without knowing more, I would assume that the bonus is paid as ordinary income. Since it is above your other ($156k) income the bonus would give you an overall income of $181k some of which (may) get taxed at a marginal 28% (federal) assuming you don't have some big deductions. You didn't mention your filing status (ie. married/single etc.).

So assuming you are single and take the standard deduction and have only 1 exemption (yourself). You get to deduct $5700 (std deduction) and 3650 (1 exemption) ==> $9350 total deductions. That gives you a taxable income of ($181k - $9.35k) = $171.65k
However note from the table below since your income is below the 33% threshold. Therefore the marginal rate for the bonus is 28%.

You will also need to pay Medicare tax on the bonus.

I don't know about your state taxes. If someone suggests 6% then I would assume that is accurate.

does that mean I should hold onto about 10k for taxes at the end of the year?

My calculations show you (may) owe around $8k additional federal and state taxes.


The below 2010 tax tables are the projected federal income tax brackets for 2010:

 

[bizlady]

If no income tax was withheld, you may need to make a quarterly payment by June 15 to avoid a penalty at year end. If you have an accountant, talk to them. If you did your own taxes, make some projections as to your income, deductions and taxes.

 

[evilnewbie]

I am filing married filing jointly (with one kid) and I do have a LOT of deductions (job hunting expenses, job related expenses, charities, property tax + mortgage interest rate (just bought a house), state income tax - itemized deductions)... Also 156k is the gross pay, its quite less than that since I contributed 6k to my 401k and my wife is going to contribute 16.5k to her 403b... also I did a rollover of my previous 401k of about 40k into a Roth IRA and trying to decide whether to pay the taxes now or 2011+2012... Next years income will be $210k (gross pay)... should I do a quarterly payment? Should I talk to the IRS?

 

[Texas Proud]

I want to know the company that gives a bonus and does NOT withhold taxes... they are asking for problems...


Do you have your pay stub... or can you download it Check it out... maybe your bonus was 'higher' and the net was $25K...

 

[MasterBlaster]

This isn't rocket science. it's just plain ole' arithmetic. Take your income (including bonus) subtract off ALL of the deductions. Add in income from ROTH conversions. That's your taxable income. Then just look at the table I posted to figure out the additional tax.

Or you could compute your taxes without the bonus and with the bonus and then subtract them to figure out the additional tax due.

Should I talk to the IRS?

You can talk to them if you want. They are, after all, really cool people deep down. However I don't see it as necessary.

 

[evilnewbie]

I want to know the company that gives a bonus and does NOT withhold taxes... they are asking for problems...


Do you have your pay stub... or can you download it Check it out... maybe your bonus was 'higher' and the net was $25K...

I don't "think" they did... I haven't started work yet, so no paystub... but I will ask them and see what they say...

 

[Martha]

I received 25k in a signing bonus but don't know what taxes I am suppose to pay. Total household income (2 + 1 kid) is 156k... I don't think the company paid any taxes... help! I heard all bonuses are taxed at 33% plus state income tax which is 6%... does that mean I should hold onto about 10k for taxes at the end of the year?

You should knowwhat the company withheld. The check stub should give the details. If I paid a signing bonus we would do the appropriate withholdings, including FICA and income taxes. There are IRS instructions for employers as to how much they must withhold from these bonuses.

After you check that you can see if you should increase your withholding on your day to day income.

 

[RunningBum]

After you check that you can see if you should increase your withholding on your day to day income.

Yes, I think that's a better way to handle extra untaxed/undertaxed income than filing a quarterly estimated tax payment, if you'll have enough regular wage income. Try to make it come out even at year end (usually 90% is good enough but there are some exceptions). You've got a lot of the year left to even it out.

Probably you won't have extra deductions just because of the bonus, so you can figure 28% of 25K, or $7000 for federal. If you can get the withholding form to your payroll dept in early June, you might have 12 paychecks left, so have them withhold an extra $583 per check on federal withholding. Do the same math for state.

That's assuming they really didn't withhold anything, which would be surprising, but possible.

 

[FIREd]

I am filing married filing jointly (with one kid) and I do have a LOT of deductions (job hunting expenses, job related expenses, charities, property tax + mortgage interest rate (just bought a house), state income tax - itemized deductions)... Also 156k is the gross pay, its quite less than that since I contributed 6k to my 401k and my wife is going to contribute 16.5k to her 403b... also I did a rollover of my previous 401k of about 40k into a Roth IRA and trying to decide whether to pay the taxes now or 2011+2012... Next years income will be $210k (gross pay)... should I do a quarterly payment? Should I talk to the IRS?

If you have a lot of deductions, keep in mind that you could get hit by the AMT when you figure out how much to set aside for taxes... Also, don't forget to set some money aside to pay for Medicare and state income taxes. Depending how much of that $156K is your own income, you might even owe some SS taxes as well.

 

[bizlady]

Talk to your accountant, or review the info from the IRS website. Publication 505 (01/2010), Tax Withholding and Estimated Tax

Adjusting your withholding is an option, make sure you meet the requirements for high income individuals if applicable from your 2009 return.

 

[Texas Proud]

I don't "think" they did... I haven't started work yet, so no paystub... but I will ask them and see what they say...

Have you got the money yet You might not be getting $25K in your pocket...


As to the other... I got a $5K bonus when I did a short time in the UK for mega... but the stub said I got 'paid' like $7K or so... all the taxes were calculated and added to the $5K for my gross pay...

You need to get the pay stub before you can get an answer... if they already have taken out taxes, then you do not have to do much... if they did not... then you do...

 

[evilnewbie]

Okay, I checked and they paid ZERO taxes on it... it was a simple lump sum distribution... I guess I will have to calculate my withholding before I start... I have the first time homebuyer credit which should offset some of those taxes (I planned ahead that way) among many other deductions/credits... I received the money already and cashed it... it was 25k as promised... I don't think I owe SS taxes on it since isn't it limited to first 109,000 or something like that? Will owe medicare taxes though... oii...

 

[Texas Proud]

Okay, I checked and they paid ZERO taxes on it... it was a simple lump sum distribution... I guess I will have to calculate my withholding before I start... I have the first time homebuyer credit which should offset some of those taxes (I planned ahead that way) among many other deductions/credits... I received the money already and cashed it... it was 25k as promised... I don't think I owe SS taxes on it since isn't it limited to first 109,000 or something like that? Will owe medicare taxes though... oii...

You need to talk to someone in HR at the firm.... if this is a signing bonus, then they should have withheld taxes and also paid SS and medicaire.... it does not matter if you have paid up for the year somewhere else.. they do not know this... you get a credit back on excess payments... they don't...

I would be curious to see what they call the payment in the HR dept...

 

[LOL!]

When are you eligible for the new 401(k)?

You might as well get out your copy of TurboTax and fill out a mock 2010 tax return to figure out what's going on in your tax life. While you can make an estimated tax payment, you can also have enough taxes withheld from your paycheck by 12/31/2010 in order to meet one of the safe harbors so that no penalty is owed. That's what I would do. Of course, this means you need to know what a safe harbor is and how to reach it. This means you need to read the IRS publications. It shouldn't take more than 30 minutes of your time to figure this all out.

 

[FIREd]

I don't think I owe SS taxes on it since isn't it limited to first 109,000 or something like that? Will owe medicare taxes though... oii...

You said that your household income was $156K, but the $109K cap is a cap on individual income. If your individual income ex-bonus is expected to be above $109K for 2010, you won't owe SS taxes on the bonus. If your individual income ex-bonus is expected to remain below $109K, some or all of that bonus money might be subjected to the SS tax.

 

[Martha]

You need to talk to someone in HR at the firm.... if this is a signing bonus, then they should have withheld taxes and also paid SS and medicaire.... it does not matter if you have paid up for the year somewhere else.. they do not know this... you get a credit back on excess payments... they don't...

I would be curious to see what they call the payment in the HR dept...

I'll reinforce Texas's post by agreeing with it. If it was a signing bonus the employer is obligated to withhold taxes.

 

[rothlev]

the new home buyers credit does have income limits. Check if you will be affected.

Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income (MAGI). Different income limits apply to purchases on or before Nov. 6, 2009 and those after that date.
For purchases on or before Nov. 6, 2009, for a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000. This means that the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
For purchases after Nov. 6, 2009, for a married couple filing a joint return, the phase-out range is $225,000 to $245,000. For other taxpayers, the phase-out range is $125,000 to $145,000. This means that the full credit is available for married couples filing a joint return whose MAGI is $225,000 or less and for other taxpayers whose MAGI is $125,000 or less. (11/19/09)

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[evilnewbie]

You said that your household income was $156K, but the $109K cap is a cap on individual income. If your individual income ex-bonus is expected to be above $109K for 2010, you won't owe SS taxes on the bonus. If your individual income ex-bonus is expected to remain below $109K, some or all of that bonus money might be subjected to the SS tax.

Dang it... you sure know how to burst my bubble... yes, I will be owing SS taxes on it then... Does anyone know if Job Hunting tax deductions is on individual income or is it on joint income for married couples? If its 2% of my income then it will be fine but if its joint, well, I won't be able to claim any of it... life isn't fair but taxes are completely unfair... I also did a mock 1040, schedule A, and AMT... it seems my MAGI is actually 200k and I realized that alot of my deductions don't qualify anymore... oiii...

 

[evilnewbie]

Oh yes, I talked to a CPA and asked him how to decrease my tax liability and he wasn't helpful at all other than mentioning retirement plans, cafeteria plans, government credits... etc.. stuff I already know, is there even a point to get a CPA to do my taxes if they don't provide any additional information?

 

[Martha]

Dang it... you sure know how to burst my bubble... yes, I will be owing SS taxes on it then... .

And how would you go about paying it? And the employer share? It isn't self employment income where you would pay self employment tax.

This whole thing doesn't make sense. Your employer has the job of withholding. Get yourself to HR and find out what the deal is.

 

[rothlev]

It sounds like this "bonus" is being paid on a 1099 misc. Check with your employer and find out. In which case you will pay the FICA and federal and state taxes that are due on it. Paying you this way when you are a W-2 employee probably isn't correct but it is often done.

Job hunting expenses are deductible subject to going over 2% of AGI and being able to itemize. Your AGI will include the spouses income. If this bonsus is being paid on a 1099 MISC. you report it on a schedule C as business income and can deduct any expenses you have against it.

 

[Martha]

It sounds like this "bonus" is being paid on a 1099 misc. Check with your employer and find out. In which case you will pay the FICA and federal and state taxes that are due on it. Paying you this way when you are a W-2 employee probably isn't correct but it is often done.

Job hunting expenses are deductible subject to going over 2% of AGI and being able to itemize. Your AGI will include the spouses income. If this bonsus is being paid on a 1099 MISC. you report it on a schedule C as business income and can deduct any expenses you have against it.

And if this is the case, the OP will have to pay self employment tax on the bonus. But it really isn't proper for the employer to do it this way. But I can understand any disinclination to complain to his employer about it.

 

[meierlde]

And if this is the case, the OP will have to pay self employment tax on the bonus. But it really isn't proper for the employer to do it this way. But I can understand any disinclination to complain to his employer about it.

If the total comp is over 109k then the SS will come back at tax time in 2011, thru a reduction in the payments on schedule SE. You will pay the 2.9% however on the total.