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JMF CPA LLC
7800 Glenmore Drive
PO Box 1297
Powell, OH 43065
Phone: 614-408-3730
Fax: 614-408-3731
Cell: 740-972-0858
Email: jo@jmfcpallc.com
Website: www.jmfcpallc.com
Many employers typically pay year-end bonuses in the first quarter of the year. If you received a bonus for the first time this year, you may be surprised at the net amount of your "windfall."
The default rate for federal income tax withholding on bonuses less than $1 million is currently 22%, so employers can withhold at a flat rate of 22% or combine regular and supplemental wages to calculate the tax amount. That means your bonus may be taxed at your highest individual income tax rate, which could be 37%, not to mention any state tax. You may receive some of the withheld amount back as a tax refund. Check with your tax professional.
Another way to minimize work bonuses' tax impact is to consider charitable contributions. Donating a portion of your bonus to qualified charitable organizations not only supports meaningful causes but also provides a deduction that could lower your taxable income.
While it won't reduce taxes, you may want to use some of your bonus to pay off a high-interest credit card or student loan. Be careful not to become reliant on annual bonuses. In tight economic times, bonuses can be reduced or even suspended.
The choice is yours, but being proactive and strategic with your bonus can lead to substantial tax savings and long-term financial benefits.
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