It is my understanding that it's all taxed the same depending upon your final tax bracket. However, the withholding rate on bonus pay is required to be higher than that of ordinary income. As long as the supplemental (bonus) money doesn't put you into the next tax bracket, your effective tax should be the same as retro wages once you've filed.

Less certain on this one, but I believe retro tax would be withheld at the rate that it should have been at the time it was originally owed.

edit: I'm no guru, CPA, or tax expert.

Income is income... You'll get slaughtered on withholding but it all sorts out at the end when you file.

(Not an accountant but dealt with this many times so I would be surprised if I'm wrong)

If you are self employed and incorporate you employ yourself. You end up paying self employment tax on your salary but may be able to pay yourself something additional without self employment tax as "return on investment" or something.

I don't know if that applies to your situation. It may be that the company avoids paying social security on the bonus.

Disclaimer: I am only an amateur tax person.

ah, thank you.
from the terms of the TA we voted down we would have lost a lot of money. but, that's the fight of labor v mgmt, we want to work for as much as possible, they want to pay us as little as possible.
and the train rolls on.

do you play sand ball?

---

ΜΟΛΩΝ-ΛΑΒΕ
we're doomed

i've got to guess, and this is purely what it is, that dependent upon what your increase in compensation is looking back that a bonus would/could be better than retro. but it would take a huge ass increase. and we're probably splitting hairs.

big pic you've answered my question. for some reason i thought if you got a bonus, it was looked at and taxed different, at a higher rate is what i thought, than retro money owed. obviously i'll let my tax gal worry about it when we get a new contract, but sitting here drinking my coffee this morning i had to know sooner v later!
i still want retro.

thx all

---

ΜΟΛΩΝ-ΛΑΒΕ
we're doomed

Bonuses are typically taxed at 25% (assuming they're significant). If you're marginal rate is higher than 25%, you'll likely still owe more money.

disclaimer - I'm a very amateur tax person

---

---

There are three kinds of people, those who can count, and those who can't.

Hmmm... I think not.

Every bonus I've dealt with was taxed at a crushing rate closer to 45%.

 
Taxes are paid on a cash basis for the year. So based on what you received for the year a tax calculation will be performed and you will be liable for that amount. It does not matter when you received the money during the year

The person is probably referring to taxes being withheld at any point in time.

Very simple example:

If you make 1k per week and are paid weekly you should have filled out your tax withholding form so the proper tax is withheld on the 52k (1*52)

Under the above, if you receive a 20k bonus, then the weekly withholding for that week will assume you are making 1,092k (21*52)

Given those are different tax brackets, the withholding will be more on the bonus week. However the actual tax liability will be the same if you receive the 20k in one week or over the course of 52 weeks

Any refunds or payments as a result of you filing your annual tax return is just a product of to much or to little being withheld.

Then maybe you've gotten really BIG bonuses, or it's just my experience with two different companies (again, small sample size). Just to clarify, I'm only referring to federal w/h, typically the net ends up being about 60% of the gross (which I think is why they refer to it as gross, b/c it is truly disgusting what is left).

---

---

There are three kinds of people, those who can count, and those who can't.

This is the correct answer, the government doesn't care how the payment is calculated only how much it is so they know what their cut is. My guess is the difference between the bonus and retroactive pay is just how much effort to figure out the number they owe is. In my experience if it is retroactive then the company has to go figure out your hours and OT potentially by year and apply the delta rate to get your payment where a bonus is likely an average number that everyone gets with no connection to actual hours worked.
Ben

Bonus, stock options, and restricted stock (supplemental wages) is normally withheld at the Federal Statutory rate of 25%. Now you can elect more if you choose. When you hit $1.0 million of income, supplemental wages are withhold at the top rate 39.6%

People seem to be discussing two separate issues here: withholding on wages and tax on income. Here are some thoughts on each of those that might be relevant to the discussion.

Withholding on wages - Employee wages are subject to withholding (i.e., the part that comes out of a person's paycheck and is submitted to the government to go toward a person's income tax obligations). The amount of the withholding depends on whether the wages are regular wages or supplemental wages. Regular wage withholding is impacted by the information shown on the Form W-4 that the employee gives to the employer (showing number of dependents, etc.), and the regular wage withholding percentage can vary from person to person.

Employers have a couple of options for calculating the amount of withholding on supplemental wages. The easiest one - and, therefore, the one that most employers use - is to withhold a flat 25% of the supplemental wage amount. Many people have regular wage withholdings of much less than 25%, which is why the withholding on bonuses often catches their attention. Bonuses and back pay are both considered supplemental wages, so one could expect the withholding on either option to be calculated in the same way by the employer.


Tax on income - There is virtually always a difference between what is withheld from an employee's paycheck and what income tax is actually owed at the end of a year when a person prepares his or her income tax return. As others have mentioned, there is no difference between the nature of a bonus payment and back pay for income tax calculation purposes. They will both be considered ordinary income and will show up on the wages line of the income tax return.

This is a federal income tax perspective, but many states also take a similar approach. I hope this adds to the discussion, and good luck with the negotiations.