[ASBSECU E93]

Biorin - But...you can manage what you actually have withheld in Federal/State throughout the year via W4 changes, correct?

[Biorin]

Originally Posted by ASBSECU E93

Biorin - But...you can manage what you actually have withheld in Federal/State throughout the year via W4 changes, correct?

Yes, you can manage this through the number of exemptions and your filing status. However, if your normal paycheck is $1k, and they use the second (aggregate) method for a bonus of $2k, you will be taxed as if you normally receive a $3k paycheck.

Edit: I have looked into this and I think I made a mistake (to be fair, I don't do personal tax). Apparently it's the "temporary" withholding on bonus that can vary, and you will be taxed exactly the same on it when it comes to return time.

[Axius]

Originally Posted by BayMoWe335

Who?

The fat chick that sings that song, all about the bass. Or did you not reference it and just made a regular statement, thus making me turn it into a reference for a fat chick making me look like the idiot?

[JohnnyCanuck]

Definitely base. In most organizations, bonus payments are keyed to a forced distribution model of some type (do not ask for whom the bell curves). Second, yours might be unique, but again most bonus schemes have a portion for individual success, but are also dependent on unit/divisional/corporate success all of which are beyond your control.

The last thing is that politics can interfere with bonuses in all sorts of ways. I remember one year my Director going to a meeting with the VP and the other two Directors with full pulls for me and two of my colleagues. He came back with only one person getting max bonus because of the distribution. What we found out later is that the Director who got the best bonuses for her team was sleeping with the VP. Rightfully so, they both got fired ... didn't do anything for my merit rating though.

Give me base every time!

[jtodd_fl]

This depends. Is it truly bonus or is it commission? Is it based on your performance (or that of a team you manage/control) or is it based on the performance of others. If it is commission? What is the trigger? What defines the "pot size"? How is it shared or distributed?
I always believe on betting on yourself. Usually, as the wise and powerful Mr Tonka has pointed out, with greater risk comes greater reward. And yes, in the US, your end of year number ends up determining your bracket. You make $480K in 12 $40K increments or you get $12K per month and a $336K bonus, you pay the same at the end of the day.

Biorin :sploosh:

[Mr Tonka]

Originally Posted by jtodd_fl

This depends. Is it truly bonus or is it commission? Is it based on your performance (or that of a team you manage/control) or is it based on the performance of others. If it is commission? What is the trigger? What defines the "pot size"? How is it shared or distributed?
I always believe on betting on yourself. Usually, as the wise and powerful Mr Tonka has pointed out, with greater risk comes greater reward. And yes, in the US, your end of year number ends up determining your bracket. You make $480K in 12 $40K increments or you get $12K per month and a $336K bonus, you pay the same at the end of the day.

Biorin :sploosh:

what the hell is with this.... :sploosh: thing after tagging someone?

[jtodd_fl]

Originally Posted by Mr Tonka

what the hell is with this.... :sploosh: thing after tagging someone?

It's an Archer "meme", but allow me to post something a tad more... instructional.

[John 070]

Originally Posted by bbbbmw

Federal Withholding tax on bonuses and commission is something like 35%, regardless of what your salary withholding is set at. Add in any state taxes and 401k contribution or other set-asides, and you prob do get about 50% in your hand. It gets equalized when you file your taxes, but the govt holds onto any difference all year long.

IIRC, Clinton set the higher withholding into place in the early 1990's.

You understand...it's amazing how many do not. I remember hearing hourly folks saying it's not worth it to work overtime, it all goes to taxes. That demonstrates a complete lack of understanding of how taxation actually works. I would love to get time and a half.

I wish that 90% tax rate had actually happened, on AIG. That was so shameful what they did, and continue to do.

[Mr Tonka]

Originally Posted by jtodd_fl

It's an Archer "meme", but allow me to post something a tad more... instructional.

Shouldn't it be.... :gulp...mmmm, salty: ?

[shivaswrath]

Thanks guys for the great responses!

My bonus is based on both my performance, which was exceptional last year, and the department and company, which also did well.

It was a watershed year for sure, I'm just pi$$ed a lot was taken out. I even told HR to keep my 401k the same so that I can shield some of it. Didn't help...

I will need to sit with an accountant and sort out my strategy next year for sure, I think they did an aggregate this pay period. Good news is the fed got $24,000 in one day! (Mother f'ers).

Guess the M3 CP will wait another year...

[EL Jeffe 5]

Originally Posted by Mr Tonka

*I belive* they only tax a higher amount because it's taxed as if their pay for that period will be their pay for all periods. So the tax bracket generally moves up for bonus. You can work with your HR department to change your W4 temporary or just ask them to withhold a different amount for that pay period. In FL anyway.

Yes thats something I been doing changing temporary.

[BayMoWe335]

Originally Posted by Axius

The fat chick that sings that song, all about the bass. Or did you not reference it and just made a regular statement, thus making me turn it into a reference for a fat chick making me look like the idiot?

No idea I made a reference or who that is. Base > Bonus

[bbbbmw]

Originally Posted by Axius

Did you really just make a Megan Trainer (sp?) reference....,


I really wish we still had a dislike button.

Give him a break. We don't want no treble here.

[bbbbmw]

From TurboTax:

"If your supplemental wages are identified separately from your salary (as a bonus, for example), your employer must withhold taxes using one of the following two methods:

- Withhold at the supplemental rate of 25 percent or

-Combine your regular wages for the pay period with your supplemental wages and treat the total as one payment of regular wages and then withhold taxes using ordinary withholding rates."

My employers have always used the 25% option. Combined with Social Security withholding and Medicare (7.62%?) it's about 33%. Seems like even when I have already exceeded the Social Security wage cap for the year, they still withhold the 32%.

[sirdaft1]

Isn't it all taxed as earned income regardless of whether it is base vs bonus? As others may have mentioned, you may be allowed to select different tax withholding amounts for each, but it all gets thrown in the earned income pot at the end of the day/tax year.

[Biorin]

Originally Posted by sirdaft1

Isn't it all taxed as earned income regardless of whether it is base vs bonus? As others may have mentioned, you may be allowed to select different tax withholding amounts for each, but it all gets thrown in the earned income pot at the end of the day/tax year.

This... it will all even out at return time.

[zx10guy]

Originally Posted by Mr Tonka

Out of the people i employ, the ones who are straight commission earn the most. Less risk to me (they make money if i make money) more i can afford to split with them.

If things go south, the first people i'll have to let go are the high salary sales people. All the straight commission sales people won't be affected.

Up until the company raises your quota so high it's almost equivalent to firing you.

[Mywifes335]

Originally Posted by shivaswrath

All things equal,
I just got my bonus today, and after taxes managed 50%-is it better to have a higher base and lower bonus if total compensation is equal?

Need some math whizzes and/or accountants to weigh in. Assume 39.6% tax bracket...

If you're good and willing to grind it out, go with bonus. If you're lazy go with base.

Most people will pick middle of the road or the latter.

Ask yourself, is there a peer whom makes more than you do in bonus? If so, the thats your answer.

Edit: bonus will get taxed, theoretically, at a higher rate than your base. But you'll get some of it back. The way taxes work isn't that complex. The highest tax you quoted is only the highest rate that can be applied. But it's never your effective tax rate. For each dollar threshold, your taxed a certain rate and it goes up...

I mean, if you actually make the maximum tax rate such that your effective rate is so close to 40%, then we shouldn't even have this conversation. You'd have an accountant.

[Mr Tonka]

Originally Posted by zx10guy

Up until the company raises your quota so high it's almost equivalent to firing you.

Without sales, there is no company. Not really a logical or probable move for the company.

[zx10guy]

Originally Posted by Mr Tonka

Without sales, there is no company. Not really a logical or probable move for the company.

It happens all the time. Maybe not in your industry. But in the IT world I'm in, there's no coincidence many AEs don't stay with a company for longer than a few years. Companies tend to punish success by raising quotas. It's a win win for the company as it forces the sales team to work harder to reach the same or more pay in commissions with the resulting by product of increased revenues and margin (depending on how each are weighted). If you miss a quarter or half below a certain percentage, you're put on a performance plan.

[Mr Tonka]

Originally Posted by zx10guy

It happens all the time. Maybe not in your industry. But in the IT world I'm in, there's no coincidence many AEs don't stay with a company for longer than a few years. Companies tend to punish success by raising quotas. It's a win win for the company as it forces the sales team to work harder to reach the same or more pay in commissions with the resulting by product of increased revenues and margin (depending on how each are weighted). If you miss a quarter or half below a certain percentage, you're put on a performance plan.

IT world if full of chumps. The men in my industry won't put up with that crap.

J/K my industry is small enough where all the employers pay the same commission scales. You mess with the commissions and they all walk, usually taking many of the customers with them.

[FogCityM3]

As others mentioned, base and bonus are ultimately taxed at exactly the same marginal rate. Some companies allow the the employee to choose a higher than 25% withholding, but some don't, this is where managing taxes and withholdings/exemptions becomes more complicated for people with large bonuses, but can't choose a higher withholding option. If the bonus is higher than the base and they can't withhold at a higher rate, leads them to pay the IRS a very large amount (with a penalty), or they have to make quarterly estimated payments for the next year to avoid any penalty and a better match between income and taxes paid.

All things being equal, best to have a higher base, but in reality most performance based jobs in certain industries (sales, finance, C-suite) have larger bonus components vs base salary and overall higher total comp because of this. Also depends on whether a component of the bonus is paid in stock or not. While getting stock (when it vests) is taxed at ordinary income rates, any appreciation of the stock from the vesting date onwards can be taxed at a lower capital gains rate when you sell (20% long term at higher income levels).