Taxes on employment bonus
wendymg
anything on the IRS site. If someone can point me in the right
direction that would be great. Every year my husband gets what his
employer calls a Continued Service Award(I call it a bonus). It's
earned at 5cents an hour and is payed in one accumulated lump sum in
December. Out of this money there is a large(40%) chunk of tax taken
out. I think because of the large amount it might be a gift tax.
Every mid November my husband fills out a form(?) for a tax deferral
so they don't take out this large chunk of tax. Due to our family size
and income level this has never affected our tax liabilty. This year
my husband was told by his employer people can no longer just do a
deferral. They have to show their 1040A form line 37, Or 1040 ez line
11. The amount in those lines has to be zero. Can anyone tell me where
I can find out about temporary waiver of payroll deductions. Thanks
Arthur Kamlet
Just the opposite.
It used to be that if you filed a Form W-4 with your employer and
listed more than 10 exemptions, the employer had to notify the IRS
who could tell the employer to use a smaller number, even zero,
exemptions. That rule changed in 2005 so the employer does not
notify the IRS of specific cases. But the IRS can still order
a change.
There's a separate rule that if you had no tax liability last
year and expect none is year, you could file form W-4 with the
employer and write EXEMPT and the employer would not withhold.
That is still the rule, and it seems as if the employer is now
going to enforce it.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Mark Bole
> I am looking for some info on tax deferral laws. I am unable to locate
> anything on the IRS site. If someone can point me in the right
> direction that would be great. Every year my husband gets what his
> employer calls a Continued Service Award(I call it a bonus). It's
> earned at 5cents an hour and is payed in one accumulated lump sum in
> December.
A typical employee working 2,000 hours in a year (no overtime) at 5
cents/hour would then get $100?
Out of this money there is a large(40%) chunk of tax taken
> out. I think because of the large amount it might be a gift tax.
No, it would most likely be 7.65% soc. security/medicare, another 20-35%
combined state and federal income tax withholding, and possibly other
state or local taxes. No gift tax involved.
> Every mid November my husband fills out a form(?) for a tax deferral
> so they don't take out this large chunk of tax. Due to our family size
> and income level this has never affected our tax liabilty. This year
> my husband was told by his employer people can no longer just do a
> deferral. They have to show their 1040A form line 37, Or 1040 ez line
> 11. The amount in those lines has to be zero. Can anyone tell me where
> I can find out about temporary waiver of payroll deductions. Thanks
If the income tax withholding is too high, at worst you should be able
to file your income tax return just a few months later, in early
February and get your refund (almost in time for the holiday credit card
bills).
Or, simply file a W-4 (and comparable state form) early in the year to
lower your overall withholding throughout the entire year, based on your
total estimated earnings.
Showing your employer a 1040A or 1040 EZ seems somewhat bogus, after all
there is no guarantee that what you are showing is what was actually
accepted by the IRS, and it may also contain other income and deduction
information that is none of your employer's business.
If this still does not address your concerns, this might be a good time
of year to visit one of the tax preparation chains in your neighborhood,
who most likely will gladly provide a short, free consultation, along
with some incentive to return in a few months for your annual return
preparation -- perhaps there are other tax benefits you are not fully
taking advantage of?
-Mark Bole
rick++
It mght be your company's payroll tax software is "confused".
It might think each check is the same for the whole year
and be bumping you up into a couple of higher tax brackets
just for that paycheck. You get it any overpayment back when
you file taxes.