Thanks,

the poor wealthy folk need all the incentive we can give them, so that they might be good americans and create jobs for the rest of us losers…if we don’t they may even go overseas or leave our country or something!

and many wealthy folk will soon understand why they need a healthy middle class :)

Matt

The way I abide my own rule requires a little bit of work and expense (for hiring the expertise) but, always nets me more money than if I had gone the regular route.

1) Take EVERY DEDUCTION available,
2) Determine what I will owe at the beginning of the taxable year (conservatively overestimate any uncertainty),
3) INVEST what I have determined I will owe as aggressively as is prudent – and do it upon receipt of EVERY PAYCHECK (no exceptions),
4) PAY my taxes at MIDNIGHT April 15th (I may actually do them in January but the Government isn’t getting my check until the last possible second.

The other thing I’ve done is payed my monthly mortgage in 2 payments each month. It cost a few dollars more per month to do this but it is about $50/month on a $200k mortgage. I paid off my 1st mortgage (30yr fixed) in 19yrs doing this and saved myself a ton of money (tens of thousands) on interest in the process.

I don’t earn a ton of money – I made $60k/yr (living in the New York Metro area ) for the 1st time at the age of 40. But at the age of 49 now I could retire and never worry about a thing – because of what I did from the time I was 16. I didn’t do anything fancy and I didn’t live on a shoestring. I just lived a little below my means and was disciplined about setting goals, doing what I said above and investing every extra penny every time a got paid. Money doubles every 7 years on average – regardless of the economy in the short term.

It isn’t magic and it isn’t hard – and you don’t even have to be smart or be financially sophisticated. All it takes is the discipline to keep putting the money away every week (50 cents or 50 dollars) without fail. AND, treat the IRS like your mortal enemy. Never give them an inch, never give them anything early and never stop asking the people writing your checks how to maximize what you keep.

I don’t care what your politics are – we can all agree that those people in government waste more money getting out of bed then some county’s total GDP for a year. Keep your money as long as you can, make it work for you and guard it like you are the only thing standing between a wounded child and a pack of ravenous wolves.

You might try the “marginal tax rates” link near the top of the article. As long as you’re doing your taxes right, the amount you make and the amount taken in taxes should be correct. How much you make determines what percent of taxes are taken, and the tax tables should show you this.

Is there anything you can do – yes contact your payroll department and have them tax less taxes out of your paycheck.

Joe

So, this is where I don’t understand the arguments about not raising taxes against top earners. “We need them, so we can’t tax them.” Not so; we need them to want to earn more; which is inherently what takes place either way. I’m not hating against high earners; I’m just don’t think it’s a level playing field.

If you made 5K and the first 5K was taxed at 5% you would net $4,750 – like you said.

Now let imagine that 5K is the point when the tax rate changes and taxes over 5K are taxed at 25%. Your taxes and net and taxes 6K would be as follows:

Taxes Net
5K $250 $4,750
1K $250 $750
Total $500 $5,500

see my comment to Raymond above. If anything, I think they didn’t take enough taxes out. Unless your base salary is very low you are likely to be in a high tax bracket with that kind of bonus. 40% sounds like the minimum they should be taking.

Your with-holding on that money probably goes something like this:

25% for federal taxes.
7.65% for FICA (Social Security and Medicare)
6.25% for state (in MN that’s what it is on bonus pay, it will change state by state)
5-15% for 401-k depending on how much you are contributing to yours.

Add those up and you get and average of 49% taken out of the check. Which is right in line with your number.

See what people don’t realize is the with-holding is assuming that all the normal deductions and lower tax bracket income that would normally come in to play are all being accounted for in your normal salary check. In fact this assumption is probably not that far off unless you are making a very low salary. Probably this income will all fall in the 25% tax bracket for federal as well as a moderate tax bracket for state.

In your normal check the first 15-40K of your check will have zero tax when you account for allowance (wife + 2 kids is 14,000 in deductions), standard deduction is 11K, if you itemize then instead of getting the standard deduction you probably end up with 20K of deductions or something. Obviously if you are single most of those numbers get cut in half or more, but you still have a good chunk of money that is taxed at zero. Then you get 8-16K at 10% depending if you are single or married. Then the next 25-50K is at 15% depending if you are single or married. After that its at 25%. So on a check of 5K normal salary, probably 1/3 or more is taxed at 0, 1/10 is probably at 10%, 1/2 is at 15% and very little at 25%. So your tax rate on the entire 5K looks like its something like 8% for federal. But that extra 5K, that’s all going in your highest tax bracket, so it probably is getting taxed at 25%. Now if you are not in the 25% bracket yet then you will get the extra 10% back at the end of the year when you figure your taxes. If you are up in the 28 or 31 or 35% brackets then you are actually going to owe even more money at the end of the year because the 25% withholding was not enough.

It’s all going to come out correct in the end as Flexo says but that extra money you got that paycheck is going to be taxed much higher than the average of the rest of your money. You can see that even for moderate income that extra money gets taxed pretty high.

Note I am thankful to have a job, and getting a bonus is nice, even if it is incredibly delayed.

However, seems to me that your bonus is not $1,200 but is $984 as $984 is what is showing up on your pay stub.

As I stated before – the IRS play by the “You can pay me now or you can pay me later rules” – your bonus just gets added with normal income to determine how much you owe the IRS. If you did not have a bonus and the when you filed your taxes you ended up at zero – then only paying $8 in taxes on $984 would cause you to owe taxes. Assuming you are in the 25% tax bracket the tax on $984 would be $246 – since you only paid $8 you would owe $238 when you filed your taxes.

No assuming you are like most Americans and get a large tax return each year – then your undertaxed bonus would only decrease your tax return amount by $238.

However, if you were overtaxed, you will get it back and undertaxed you will pay more later.
Bonuses are just like all other income, you add them all together, tax all deductions, calculate you taxes and if you overpaid you get a refund and have underpaid you have to pay extra.

thanks

The IRS simply treats them as they earn that bonus annualized i.e if you get a $50,000 bonus…. the IRS treats it as if you make 50K X12 = $600,000.

Definitely do the minimum withdrawal of 25% under a million payment for sure!

Are you finally non-exempt at your employer Flexo? As that’s stage one to get those big bonuses!

Best,

Sam