Is Receiving a Bonus Payout Considered Part of "Earned Income?" (percentage, refund)
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Unexpectedly and happily, I was surprised to see a chunk of money direct deposited into my checking account from my ex-employer yesterday. They do a bonus payout that is split, so you get part of your bonus in December and the rest in June. I received my December bonus payout, which I was expecting, and thought that's it because I separated from the company in 2017. Well surprise surprise!
I want to take this money and use the gross amount for a 2018 IRA contribution. I think it's considered part of "earned income" in which case I'll be able to use this money to fund my IRA. In prior years I notice bonus payouts did have 401K contributions subtracted from them, if the employee opted in to 401K contributions. On this payout since I'm no longer an employee no contributions were taken out, just taxes.
So... earned income, yes? And I can use the gross amount towards a tax-deferred IRA, within the IRA limits, of course?
Unexpectedly and happily, I was surprised to see a chunk of money direct deposited into my checking account from my ex-employer yesterday. They do a bonus payout that is split, so you get part of your bonus in December and the rest in June. I received my December bonus payout, which I was expecting, and thought that's it because I separated from the company in 2017. Well surprise surprise!
I want to take this money and use the gross amount for a 2018 IRA contribution. I think it's considered part of "earned income" in which case I'll be able to this money to fund my IRA. In prior years I notice bonus payouts did have 401K contributions subtracted from them, if the employee opted in to 401K contributions. On this payout, since I'm no longer an employee, no contributions were taken out.
So... earned income, yes?
Yes, it should be reported as W-2 wages so definitely earned income.
The Percentage Method: 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.Nov 9, 2017
The Percentage Method: 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.Nov 9, 2017
The Percentage Method: 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.Nov 9, 2017
Not "taxed, but "withheld".
So unless your normal marginal tax bracket is 25 (or now 22%) or above, you may see some of that money back as a bigger refund, or less tax owed, come April 1040 time.
But I could put the entire $5k gross amount into an IRA (tax deferred) and claim that on my taxes for the deduction, yes?
Yes, as long as your total IRA contribution for the year does not exceed the maximum.
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