Federal Tax on Bonus'

[Shibby]

I got my 5th bonus pay out yesterday. My company pays every quarter and 20% of the total payout is put into a "pot" for an end of year 5th bonus, only given to employees who receive an exceeds expectations on their annual review.

Can anyone explain to me how the govt can tax this (and all bonus for that matter) by 40%? How it was determined this was "unearned" income and continue to get away with it?

[alwaysgrowing]

I got my 5th bonus pay out yesterday. My company pays every quarter and 20% of the total payout is put into a "pot" for an end of year 5th bonus, only given to employees who receive an exceeds expectations on their annual review.

Can anyone explain to me how the govt can tax this (and all bonus for that matter) by 40%? How it was determined this was "unearned" income and continue to get away with it?

As I understand it Shibby, you get some of that back at the end of the year. The tax seems so high because they tax the check as if that is what you are earning everyweek. I.E. if you get a $10,000 bonus check, they considered you making $520,000 per year for tax purposes. But when you file your return and claim, let us say $90,000, your tax rate is adjusted accordingly. That is my understanding of the rules on bonus tax. Arguing is my forte, so my tax analysis may be off, but I believe it is correct

[Timma]

As I understand it Shibby, you get some of that back at the end of the year. The tax seems so high because they tax the check as if that is what you are earning everyweek. I.E. if you get a $10,000 bonus check, they considered you making $520,000 per year for tax purposes. But when you file your return and claim, let us say $90,000, your tax rate is adjusted accordingly. That is my understanding of the rules on bonus tax. Arguing is my forte, so my tax analysis may be off, but I believe it is correct

That is correct. When you get that bonus check the amount throws you into a higher tax bracket and they charge accordingly. You'll get some of that back at tax return time.

It is considered unearned income because it is not part of your base salary. Now i'm not positive, but putting it into the unearned income category may actually hurt you compared to if it was part of your salary because you can claim an earned income credit on your federal taxes. By placing this in unearned you cant put it towards that credit.