fed tax withhold

[kittypuppymom]

Lucky us are going to get a good bonus this year. Owner of the company is going to share in the profits. We have all in the past have had to take some major cuts in pay and benefits to keep afloat. Our industry has had a major come back. Yea us.

So the question is some of the bonuses are going to be pretty big how should I calculate their withholding? Should I ask the individuals what kinda tax bracket they are in and how much they want to withhold? Or should I change the way Quickbooks payroll to monthly withholding instead of weekly calculation? For example I am in a 28% tax bracket on my income tax return. Would it be safe bet to withhold 28% so I do not owe???

[Deleted]

The company I worked at always took a flat 25% for bonus withholding (I think this was a lump sum rule).
Your marginal tax rate might be 28%, but your actual total tax rate is typically lower - unless you have been under witholding all year, I would not put 28% rate on the bonus.

[spartan7886]

These are marginal dollars, so the marginal tax rate is applicable. I think most companies do the 25%, though, since they don't have the relevant information.

OP, check out the Tax Talk board. You'll get a better response over there. There are several professionals over there who are great about helping people.

[moon/Laura]

kittypuppy, i was thinking the same thing as spartan.. tax talk will have way more info.. I will move this there.

[mwcpa]

Under the federal tax law and regulations withholding on "bonus" payments is discussed in IRS Publications 15 (http://www.irs.gov/publications/p15/index.html), 15-A (http://www.irs.gov/publications/p15a/index.html) and 15-B (http://www.irs.gov/publications/p15b/index.html) . Also, be aware of any state and local requirements.

The basic rule is to withhold 25% (federal income tax) on bonuses paid of under 1,000,000 and 35% on those of 1,000,000 or more.... other methods do apply (see section 7 of publication 15 link I gave "supplemental wages")

"7. Supplemental Wages
Supplemental wages are wage payments to an employee that are not regular wages. They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. See Regulations section 31.3402(g)-1 for additional guidance for wages paid after January 1, 2007. Also see Revenue Ruling 2008-29, 2008-24 I.R.B. 1149, available at
www.irs.gov/irb/2008-24_IRB/ar08.html.

Withholding on supplemental wages when an employee receives more than $1,000,000 of supplemental wages from you during the calendar year. Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1,000,000. If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1,000,000, the excess is subject to withholding at 35% (or the highest rate of income tax for the year). Withhold using the 35% rate without regard to the employee's Form W-4. In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. For more information, see Treasury Decision 9276, 2006-37 I.R.B. 423, available at
www.irs.gov/irb/2006-37_IRB/ar09.html.

Withholding on supplemental wage payments to an employee who does not receive $1,000,000 of supplemental wages during the calendar year. If the supplemental wages paid to the employee during the calendar year are less than or equal to $1,000,000, the following rules apply in determining the amount of income tax to be withheld.

Supplemental wages combined with regular wages. If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period.

Supplemental wages identified separately from regular wages. If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages.
If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages.

Withhold a flat 25% (no other percentage allowed).

If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax withheld from the regular wages. Withhold the remaining tax from the supplemental wages. If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax.

If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b above. This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages."