I was pleased to get a bonus this year - until I saw that the net was reduced by $1350 in federal taxes. I called payroll and learned that the taxable amount (good thing a portion went to my 401K) was taxable at 25% per the Supplemental Tax Rate.
Will I get this back in next years tax refund (married plus a dependent) or is it reported separately and maintained at 25% rate?
Well, if you were on track to be exactly right, no refund, no money due, then it depends on your tax bracket. see
You mean "gross", not "net". You also mean "federal tax withholding", not "federal taxes".
Yes, the taxable amount was taxable (sorry, couldn't resist). However, at this point you are concerned about withholding.
Withholding rate, not tax rate.
No, it is not "reported" (I think you mean "taxed") separately. All of your taxable wages, including bonus, will go on Line 7 of your Form
1040, and from there will be combined with all your other income and adjustments and deductions to yield your actually taxable income.Joe is exactly right. Regardless of your over or under withholding, you will end up paying just the correct amount of tax when you accurately prepare your return, and any difference between your tax and your account balance with the IRS will be refunded or billed, as appropriate.
Usually, an annual bonus will be over-withheld by default, and will result in a larger refund or smaller balance due than you were expecting. Essentially, your inflated pay for that one pay period will be withheld as if you earned that much *every* pay period, which of course you don't.
-Mark Bole
No one can say one way or the other now. It all depends.
But to put your mind at ease, note that the actual taxes due for the year are computed only at the time you file your tax return. At that time, you subtract whatever you paid during the year to determine the amount of refund (paid too much) or payment due (paid too little).
So the only harm in the large supplemental withholding is that you might prepay more taxes earlier than necessary and it might put you far over the actual taxes (again, determined when you file), resulting in a large refund. It is simply a cash flow issue and an opportunity cost (you have less cash inflow to invest), not a matter of paying more actual taxes.
If you believe the large supplemental withholding will put you far over the actual taxes for the entire year, you have the option now of submitting a new W-4 to your employer to reduce the amount of normal withholding for the remainder of the year. You accomplish that by increasing the number of allowances stated on the form.
But be careful not to go too far. Remember: if you grossly underwithhold (or otherwise prepay) taxes during the year, you may be subject to a penalty when you file your tax return. Although the penalty is relatively low and nothing to lose sleep over, it is yet-another form to file, and it is relatively complicated for most people. (But no problem at all if your taxes are prepared by a professional.)
If this sounds complicated, simply ignore the comment and don't worry about the large supplemental withholding. At worst, think of it as an interest-free loan to the federal government :-(.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.