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Old 04-17-2019, 05:51 AM
 
Location: Southern New Hampshire
7,236 posts, read 12,687,996 times
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Quote:
Originally Posted by fishbrains View Post
That would be the rational for doing it.

Bonuses are a bit weird when it comes to taxes, and how they are taxed depends n decisions made by your employer. The employer can withhold at a flat rate, or at the rate indicated by your exemptions. Your employer apparently does the latter.

Because bonuses are often many times the size of s standard weekly (biweekly, whatever) check, the IRS tax tables dictate a higher level of withholding, because it looks like you are earning more money. As an example:

If you earn $1000/week, you are withheld as if you earn $52,000/year.

If you get a $5000 bonus, and they add it to your weekly pay, you are withheld as if you earn $312,000, year. That is obviously a higher withholding rate, so it will look really high.

At the end of the year, when you file taxes, no matter what was withheld for your bonus, you will be taxed as if you earned $57,000 that year, because that is the actual gross wage. This means if a lot was withheld, you will get a bigger refund.
As Fishbrains pointed out ^^^, it actually IS a logical thing to do when a particular paycheck (or a few paychecks) will be WAY more than the usual -- otherwise way too much in taxes will be taken out for that one paycheck (or those few paychecks). Another example: I often make an extra ~$20,000 in 6 weeks in the summer, and if I didn't change my withholding, those 3 paychecks (I get paid every 2 weeks) would have way too much in tax taken out because I am taxed as if that extra $6,667/paycheck is part of my REGULAR pay. (I wish! )

The biggest thing to remember is to change the withholding back to one's "normal" AFTER those "big" paychecks have passed! Otherwise you'll likely have too LITTLE taken out for the rest of the year.
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Old 04-17-2019, 06:07 AM
 
1,211 posts, read 1,050,226 times
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In the end, it's just shuffling money. Whatever "extra" money they get back in that check will either directly decrease their tax refund or directly increase their taxes owed by that exact amount at the end of the year.
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Old 04-17-2019, 08:01 AM
 
Location: Jollyville, TX
3,851 posts, read 9,448,416 times
Reputation: 4407
No one is getting more money - they're just having less withheld for taxes. Since the IRS guidelines say that tax withholding on bonuses should be 25% and many people won't end up owing that much, it's s smart way to keep that extra money from becoming a loan to the IRS. I found this article that actually gives some tips on doing this very same thing.


https://finance.zacks.com/adjust-wit...come-1609.html
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