Bonus is part of most employees salary package. If offered. It gets hit at 40% tax rate or something like that. Hurts! As most middle class use that to pay off debt or something large they are planning. It minimizes what you can do so much due to the amount taken from taxes. We earned it we should get it.
16 Likes
Your policy would be unfair to people who’s pay structure does not include bonus pay. It would also encourage fraud by classifying wages as “bonus”. For example, Person 1 is paid $50,000 per year. Person 2 is paid $40,000 per year with a bonus $10,000 bonus. Person 3 is paid $30,000 with a $20,000 bonus. All 3 earn the same amount of money over the course of the year, so (all other things being equal) they should pay the same tax rate. However, in your example, 40% is just the initial tax rate and you get much of it back when you file your taxes. I could agree on reducing the initial tax rate so you keep more from the paycheck when the bonus is paid.
1 Like
Not all things are going to be equal and thats not a realistic reality to expect. The bonus pay is a bonus not salary. It would be great to have it tax free. Payroll documentation requirements and audits can control the fraudulent part.
2 Likes
Just reduce income taxes entirely.
2 Likes
Ok, the original poster wasn’t proposing a 40% bonus. While yes one comment did clarify, you tend to get your extra taxes BACK after filing. Why should we give the IRS a loan? And why is our payroll ‘just doing as they are told’ acting as our tax accountants? The laws need to be adjusted so payroll doesn’t take so much, and all pay of a regular job should not be outside any normal range! It’s not short or long term capital gains, and it’s not property taxes (those should go away too, but diff topic). The bottom line is payroll thinks they are doing us a favor by taking more or something. I do not want to wait months to a year to recoup what is mine in an already difficult economy, especially when bonuses are typically tied to PERFORMANCE, so we deserve what we earned!
I actually never knew this cause i’ve always kind of pretty much worked for myself, but hearing that is absolutely. Unacceptable. That’s like giving somebody a Christmas gift and saying. Oh, but wait because you are an employee at our company. We gotta make you pay taxes if you want this Christmas present or a birthday present, or what have you that? That’s just wrong on all levels. How does that makes sense to do that to someone. You are cheating them out of thir own salary in which they worked hard for you for. That should be their money, not the bosses. The company nor the bosses work for it, so why should they get any of it. 
Firstly, bonuses are not wages. People who receive bonuses do so for other reasons. Most of the time, they are conditional and can be reduced or removed per your contract because they are not wages. There are also bonuses where the amount is dependent on external factors, i.e., shareholder bonuses. This actually puts people who depend on them at a disadvantage, not vice versa.
Standard bonuses are usually taxed at 22% by the federal government. You also do not “get them back” at the end of the year unless you fall under a certain income bracket and have underage dependents.
The law for taxing bonuses is outdated and is admittedly so by most who deal in the financial sector.
With that said, I do agree that doing away with the tax altogether is not a good idea; however, that doesn’t keep people from using loopholes. Just like the rich use certain types of life insurance policies to borrow against, thereby being able to reduce taxable assets. Or the tax loopholes where, for example, McDonald’s builds new stores for the sole purpose of claiming losses so they can reduce taxable income. The list goes on, and none of it is illegal; they just know how to play the game better. I’m sure this would be exploited as well. I’d be happy just to have it taxed at normal wage tax rates, to be honest. Twenty-two percent is ridiculous.
If you don’t want to “give the IRS a loan” set your tax withholdings higher. This means more comes out of each individual paycheck, and your return at the end of year is smaller.
Uh…that’s a terrible idea. The whole point is putting more money in our pocket, not short changing yourself. That’s still giving the IRS a loan. The idea is to get your withholdings near perfect so you don’t owe much or get much back. Payroll needs to stay out of the financial planning or tax estimating business. The entire tax code can be shrunk to 10 pages or less. In the end, bonuses and normal pay are all the same rate at filing, so there is no justification to force a 25% withholding of bonuses by payroll. This becomes especially true with higher earner bonuses where we’re talking over $10k, etc.