This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Are Bonuses Taxed at a Higher Rate? No.

Remember, your federal withholding and/or your estimated tax payments must equal either 100% of last year's federal income tax or 90% of your projected 2000 federal tax bill, whichever is less. (If your 1999 adjusted gross income exceeds $150,000, the total must equal 108.6% of last year's bill.) So you want to make sure you meet either of these requirements or you'll be hit with an underpayment penalty in April.

If you're typically in the 15% federal tax bracket, and you had 28% withheld on your bonus, you may have had enough tax withheld already. You will get any extra back as a refund when you file your tax return in April. So why not adjust your Form W-4 -- Employee's Withholding Allowance Certificate? That's the form that tells your employer how much to withhold from your wages each pay period. You can have less withheld for the rest of the year if you've already paid in enough. (Check out this previous Tax Forum for more on adjusting your W-4.)

On the flipside, if you're in the 39.6% tax bracket and you've only had 28% withheld on your bonus, you're going to owe that 12% difference in April, says Martin Nissenbaum, national director of personal income tax planning at Ernst & Young. So you may need to increase your withholdings or start making estimated tax payments. Check out this previous story for more details on estimated payments.

Note that if you change your W-4, your employer is not required to implement those changes for 30 days, says Nissenbaum.

If you left the company and you're still owed a bonus, you will be withheld under the annualized method, says Nissenbaum. The 28% only applies if you had regular withholding from the company within the same year, he says.

Granted, this seems like a bummer now, but at least you won't have to cough up a big chunk of money in April.

I know. That's zero consolation.

Send your questions and comments to , and please include your full name. Tax Forum appears Tuesdays, Thursdays and Saturdays.
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback; click here to send her an email.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.25 -1.70%
FB $116.59 -0.12%
GOOG $690.54 -0.07%
TSLA $238.43 -3.70%
YHOO $36.29 -0.82%


Chart of I:DJI
DOW 17,697.87 -132.89 -0.75%
S&P 500 2,056.80 -19.01 -0.92%
NASDAQ 4,756.8350 -48.4560 -1.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs