? About a bonus and taxes

[poe]

I’m a teacher and have never gotten a bonus before so this is all new to me! I will be receiving a 3,000 bonus on my paycheck next week. I received an email stating I could change my w-4 status for taxes so that I can get the full bonus otherwise it will be taxed at 25%. Several of my coworkers are going to change their withholding for the month then go back to their original withholdings so they can get the total amount. My h is saying that we should just keep my withholdings the same because at the end we’ll need to claim it on our taxes and then we’ll either have less of a return or owe in April. Sorry I’m clueless with all of this. Should I change my withholdings or just keep it and get less of my bonus?
I hope this all makes sense!

[hbomdiggity]

I wouldn’t change. Your H is right, it will come back when you file.

[dr.girlfriend]

From what I understand, the rate of WITHHOLDING on the bonus is really high, but in the end you're only taxed on whatever your effective tax rate is. So, when you get the bonus they'll hold back 25%, but if your effective tax rate is only 14% when you file your taxes you'll get the remaining 11% of the bonus back as a tax refund (assuming all your other tax stuff evens out). I would leave everything as it is and maybe you'll get a nice surprise in April. I would rather get a refund than owe when tax time comes around, though, so YMMV.

[steamboat185]

We never change our withholdings for bonuses as I’d rather not owe money at tax time. Even though it kind of stinks when the bonus is smaller than hoped.

[SusanBAnthony]

Don't change. You need to pay taxes on it- you'll just end up writing a check in the spring.

The only exception would be if you reliably get a big refund- but given the tax changes last year, no can say that at the moment.

[poe]

Nov 16, 2019 8:06:06 GMT -5 SusanBAnthony said:

Don't change. You need to pay taxes on it- you'll just end up writing a check in the spring.

The only exception would be if you reliably get a big refund- but given the tax changes last year, no can say that at the moment.

We did put solar panels on our this year so we should be getting some refund but both my h and I got raises so we are in a higher income bracket.
I will just keep my withholdings the same and hope for a nice refund this spring!

[niq]

It sounds like you got good advice, but ... congratulations!

[poe]

Nov 16, 2019 10:26:29 GMT -5 niq said:

It sounds like you got good advice, but ... congratulations!

Thanks! 💛💛💛

[dr.girlfriend]

Nov 16, 2019 10:10:47 GMT -5 poe said:

Nov 16, 2019 8:06:06 GMT -5 SusanBAnthony said:

Don't change. You need to pay taxes on it- you'll just end up writing a check in the spring.

The only exception would be if you reliably get a big refund- but given the tax changes last year, no can say that at the moment.

We did put solar panels on our this year so we should be getting some refund but both my h and I got raises so we are in a higher income bracket.
I will just keep my withholdings the same and hope for a nice refund this spring!

Score!  We did this too and the solar tax credit is 30% for this year only before it starts getting phased out.  As long as you bought them and are not leasing them.

[poe]

Nov 16, 2019 14:03:32 GMT -5 dr.girlfriend said:

Nov 16, 2019 10:10:47 GMT -5 poe said:

We did put solar panels on our this year so we should be getting some refund but both my h and I got raises so we are in a higher income bracket.
I will just keep my withholdings the same and hope for a nice refund this spring!

Score!  We did this too and the solar tax credit is 30% for this year only before it starts getting phased out.  As long as you bought them and are not leasing them.

Nope we bought them!

[Stan]

Nov 16, 2019 10:10:47 GMT -5 poe said:

Nov 16, 2019 8:06:06 GMT -5 SusanBAnthony said:

Don't change. You need to pay taxes on it- you'll just end up writing a check in the spring.

The only exception would be if you reliably get a big refund- but given the tax changes last year, no can say that at the moment.

We did put solar panels on our this year so we should be getting some refund but both my h and I got raises so we are in a higher income bracket.
I will just keep my withholdings the same and hope for a nice refund this spring!

I'm sure you know this, but those raises shouldn't hurt you too much. Even if you are what is colloquially known as being in a higher tax bracket, it's only the portion that's over that gets taxed that way. For illustrative purposes, if the tax rate is 10% if you make 50,000/year and 20% if you make 51,000, only that 1,000 is taxed at 20%, not the whole 51,000. Again, you likely know this, but I often see in my work that it's a common misconception.

[tres3]

Nov 15, 2019 21:04:50 GMT -5 dr.girlfriend said:

From what I understand, the rate of WITHHOLDING on the bonus is really high, but in the end you're only taxed on whatever your effective tax rate is. So, when you get the bonus they'll hold back 25%, but if your effective tax rate is only 14% when you file your taxes you'll get the remaining 11% of the bonus back as a tax refund (assuming all your other tax stuff evens out). I would leave everything as it is and maybe you'll get a nice surprise in April. I would rather get a refund than owe when tax time comes around, though, so YMMV.

Depends on your brackets. When we used to get bonuses, being taxed at 25% caused us to owe taxes. 

OP I wouldn't change a thing on your taxes. 

[sloan]

I wouldn’t change your taxes.

Also I’ve only ever had 401(k)s we could change the contributions to whenever so I don’t know if it’s even possible in your case, but one thing I’d do was bump up my retirement contribution right before a bonus check. That sheltered some of it from taxes without biting me at filing time.

[sadlebred]

Let's say you did want to change the taxes to not withhold anything, how far ahead would you have to change them? (Assume that owing isn't an issue.)

[mich1]

Nov 20, 2019 16:10:29 GMT -5 sadlebred said:

Let's say you did want to change the taxes to not withhold anything, how far ahead would you have to change them? (Assume that owing isn't an issue.)

I would imagine that this is dependent upon how quickly your HR person makes the changes and your payroll schedule.  

[poe]

I didn’t change my withholdings. The w-4 was due yesterday and I get paid next Monday. Thanks everyone for all your advice!

[OG Jo]

Payroll manager here. You shouldn't have to change your withholdings; per IRS regulations, bonuses are considered supplemental income and should be taxed at the current supplemental rate 22%. Each state handles supplemental wages differently as far as supplemental rates - some offer their own supplemental rate, some do not. You'll also be taxed the standard 6.2% for OASDI (Social Security) and 1.45% for Medicare.

If you're really bored/curious, you can read about supplemental withholding here:
www.irs.gov/publications/p15

[sillygoosegirl]

Nov 20, 2019 5:38:49 GMT -5 tres3 said:

Nov 15, 2019 21:04:50 GMT -5 dr.girlfriend said:

From what I understand, the rate of WITHHOLDING on the bonus is really high, but in the end you're only taxed on whatever your effective tax rate is. So, when you get the bonus they'll hold back 25%, but if your effective tax rate is only 14% when you file your taxes you'll get the remaining 11% of the bonus back as a tax refund (assuming all your other tax stuff evens out). I would leave everything as it is and maybe you'll get a nice surprise in April. I would rather get a refund than owe when tax time comes around, though, so YMMV.

Depends on your brackets. When we used to get bonuses, being taxed at 25% caused us to owe taxes. 

OP I wouldn't change a thing on your taxes. 

If your marginal tax rate is over 25%, this is still consistent with the example. The bonus would make you owe more than 25% of the bonus, so if only 25% was withheld, you'd have to pay some of the taxes in the spring.