It'll work out when they each do their taxes to whatever their tax rate is.

If your employees end up in an effective 42% tax bracket, that's what I call a high quality problem.

More than likely, they'll get half of that back as another bonus come tax time.

DDub74 said:

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Yeah I would think most of them will be in the 20-25% area of total tax so they should technically get that 15-20% back or in tax savings.

Just sucks you give someone $10K and they get $5800 in their paycheck. I guess Bidenomics needs all this to pay for Ukraine.

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when did biden change the tax code?

Your employees completed W4s. You're withholding based on their directives. They should discuss with their tax preparer if they have any questions or concerns.

Bonuses are generally withheld as supplemental income, which means withholding of a flat 22% unless above 1mil, then 37%. The employee isn't supposed to have to account for bonuses in their w4 since they are generally unexpected amounts. It works out in the end, but withholding as if it were a paycheck is not the correct way to go.

This. Unless it's a weird one off, bonuses are generally a supplemental wage and hit at 22% for FIT unless they're high earners. With SS & Med you should see just under 30% (assuming no state) total. A few states have their own supplemental wage rate but the ones I've seen are only like 4-8%.

If someone had 42% taxes taken out payroll probably didn't code the bonuses correctly. As others have said, it'll true up when they file taxes & uncle Sam thanks them for the short term loan.

The only other thing I can think of is does the 401k allow bonus contributions? If so maybe they unknowingly have a set % or $ elected to go to the plan if they receive bonuses? Many payroll systems these days allow employees to elect optional rules (different direct deposit split, elected deferrals, etc) for supplemental payments.

At one of my previous jobs the payroll service had something goofy that assumed your salary was 26x whatever your paycheck was that period and adjusted withholdings accordingly, so when a paycheck included a bonus it thought you got like a 5x raise and withheld tax at the maximum. That's probably what's going on here, as noted above, it will all get squared up in April

Kinda mind blowing that someone can run a business and not understand how this works. And then blame it on "bidenomics". Yikes.

GarlandAg2012 said:

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Kinda mind blowing that someone can run a business and not understand how this works. And then blame it on "bidenomics". Yikes.

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What is really mind blowing is someone coming to this board for help with the Byzantine tax code and it's interaction with payroll, but someone 40 years their junior feels the need to clown on them.

And yeah, the reason why so much money from small businesses and their employees gets sent to Washington is to fund things like the current president's foreign and domestic agenda.

P.H. Dexippus said:

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GarlandAg2012 said:

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Kinda mind blowing that someone can run a business and not understand how this works. And then blame it on "bidenomics". Yikes.

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What is really mind blowing is someone coming to this board for help with the Byzantine tax code and it's interaction with payroll, but someone 40 years their junior feels the need to clown on them.

And yeah, the reason why so much money from small businesses and their employees gets sent to Washington is to fund things like the current president's foreign and domestic agenda.

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What does age have to do with something easily understandable? Just having survived for a certain amount of time does not warrant being treated differently. If anything more age should mean more understanding of how things work.

So if the current president's agenda were different, less money would be sent to Washington? Wrong.

I'm sure your fellow F16er appreciated you white knighting for him though.

I am not sure much in this country is more misunderstood then tax rates vs marginal tax rates.

Thanks for all the responses.

And yes we run a very well run lean company less than 40 employees and all payroll and accounting is done in the main office , not mine, so I don't pay attention to it as much as I should. I know it will all work out in the end, just this is the first year in last 8 that an employee mentioned it so didn't know if the tax laws have changed. And not blaming on Bidenomics, just a joke because I am not a fan of how big our government has gotten is what I meant. I know what we do very well, but have learned as we have grown why there are HR companies, accounting firms, law firms, lsales/marketing, etc. as it gets more and more complicated as you grow and you have way less time to manage it all.

dallasag_123 said:

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I am not sure much in this country is more misunderstood then tax rates vs marginal tax rates.

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Maybe the difference between "than" and "then?"