For example, if I’m given a check for $ 3,000 what would determine the rate I’m taxed at. I know I’m taxed at a higher rate as the amount of the check goes up, but how is that bracket determined?
Answer by PepsiLime
25% federal, 6.2% social security (unless you’ve already hit the limit of 97,500 in social security wages), 1.45% medicare, and whatever your state rate is. It’s a standard rate for the federal.
I attached a link to information regarding bonus’ and immediately below is information from the link.
Two-tiered Federal Income Tax (FIT) Bonus Rate Support
Under the rules described in Publication 15 (Circular E), employers have the option of including bonus payments with regular wages and calculating the related tax on the total using the regular withholding tables or calculating the withholding tax related to the bonus separately using an alternate method. In previous years, one alternate method allowed by the IRS and supported by Signature was to simply apply a flat rate to the gross bonus payment. When the flat rate alternative is used, no deduction for exemptions is permitted.
Beginning in 2005, the American Jobs Creation Act of 2004 requires bonus withholding using the flat-rate alternate method to be calculated at two rates.
Under the new Law, a rate of 25% applies to all earnings up to and including $ 1,000,000; a rate of 35% applies to all bonus payments in excess of $ 1,000,000 for the year
The rate of 25% is just for federal withholding, to that you need to add the 6.2% social security and 1.45% medicare, so with federal alone you are at 32.65% withholding. Then add your state withholding.
Answer by Dan S
bonus checks are taxed at 42% because they are considered extra income. Your rate stays the same and at the end of the year you will get most of that back if you are under 100K. They do this to stop the big players from getting everything as a bonus check and skirting the government. so the little guy gets hurt
Answer by no id
The answer above is correct for the withholding amount. However, you are actually taxed at your marginal rate (the tax amount applied to the next dollar you make). The rates go from 0% up to 35% Federal. Then your state rate applies as well.
There are standard bonus withholding rates that employers can withhold to meet their withholding obligations. The employer does not have to try to figure out your marginal rate and withhold at that rate. So, you may have too much withheld if you have a low salary (and you will get a refund when you do your taxes) or you may not have enough withheld (and you will owe when you do your taxes.)
Beltsville, MD (PRWEB) February 05, 2014