Ok bean counters. Help me understand why an employer would use the aggregate method?

[pstall]

Instead of the nice and simple percentage method, what advantage is there for a company to use aggregate and take a bigger chunk out of your bonus?

[Davidson Deac II]

http://smallbusiness.chron.com/tax-liability-bonuses-vs-salary-25845.html

 

 

Most states allow another way to tax bonuses: the aggregate method. To calculate the taxes due using this method, the employer pays the bonus with a regular paycheck, deducting the same amounts as would be deducted from wages. The employee reports the bonus with regular wages, paying the same amount of taxes as she normally pays for her income. The aggregate tax method is popular because it usually allows employees to keep a higher percentage of bonuses. A potential drawback of the aggregate method is it can knock employees up to a higher income tax bracket, making their income taxes go up

 

[pstall]

I read the opposite of aggregate. Percentage is more of a simple flat rate of 25%.

[Paintballr]

I dont know how my employeer does it or what method it is, but when I get my quarterly bonus on my check, it is usually missing 40% because of taxes

[Montsta]

My last year at my old company I got a really, really large bonus that they took like 40% of off the top and I owed more at tax time because my annual income went up to the next bracket. Does that sound legit or did I get fuged?

[PandaPancake]

Soon as they give me a bonus for working the fryer I'll let you know.

[Davidson Deac II]

I read the opposite of aggregate. Percentage is more of a simple flat rate of 25%.

 

Well, its just something I found on a website the other day while trying to determine bonus amounts.  I do not vouch for the accuracy of the article. 

 

I think it all works out at the end of the year though, more or less. 

[pstall]

I would prefer the lower rate and let me itemize and work deductions in my favor at the end of the year.

[clark kent]

Ive never had a bonus before , how does it feel?

[pstall]

Ive never had a bonus before , how does it feel?

Half of what i earned.

[carpanfan96]

Ive never had a bonus before , how does it feel?

You get excited till you see the check and find 40-45% is missing...then you get agitated and pissed and throw it in savings.

[Panthro]

Maybe less work on payroll

[MadHatter]

Guys...you do NOT get fuged by having your witholding of taxes being higher or lower (unless you withold too little and get yourself into a penalty situation).  Witholding has NOTHING to do with how much tax you owe.  It will only impact whether you get a refund or owe taxes at the end of the year....so, it is only a timing thing.

 

The aggregate method typically witholds less if the bonus amount is moderate.  Under the aggregate method, the taxes are calculated based on your exemptions declared and the amount of your period pay.  If you get paid bi-weekly, the calculation basically takes the amount of pay and multiplies it by 26.  It then uses this projected full year salary to put you in the witholding tax bracket.  It you have a small bonus, it does not throw your bracket off by much.  If it is a larger bonus, the projected full year salary may be skewed hugely and you get taxed big time.

 

To alleviate this, most companies use what is known as the bonus rate....which is 25% Fed, 7% State, and then 7.65% for SS and Medicare (dependant upon whether you have hit your limit or not). It just makes it easier on the company.

 

There is a way around this, but it takes a bit of work.

 

Calculate the additional taxes withheld over and beyond your normal rate....then jack up your declared exemptions by preparing a new W9 form.  This will withold less from your normal paycheck.  Then change the exemptions back once you recover the addit taxes that were witheld.  It may take a few paychecks to recover....but is better than not getting it back until the end of the year (when you complete your taxes).

 

 

[pstall]

Guys...you do NOT get fuged by having your witholding of taxes being higher or lower (unless you withold too little and get yourself into a penalty situation). Witholding has NOTHING to do with how much tax you owe. It will only impact whether you get a refund or owe taxes at the end of the year....so, it is only a timing thing.

The aggregate method typically witholds less if the bonus amount is moderate. Under the aggregate method, the taxes are calculated based on your exemptions declared and the amount of your period pay. If you get paid bi-weekly, the calculation basically takes the amount of pay and multiplies it by 26. It then uses this projected full year salary to put you in the witholding tax bracket. It you have a small bonus, it does not throw your bracket off by much. If it is a larger bonus, the projected full year salary may be skewed hugely and you get taxed big time.

To alleviate this, most companies use what is known as the bonus rate....which is 25% Fed, 7% State, and then 7.65% for SS and Medicare (dependant upon whether you have hit your limit or not). It just makes it easier on the company.

There is a way around this, but it takes a bit of work.

Calculate the additional taxes withheld over and beyond your normal rate....then jack up your declared exemptions by preparing a new W9 form. This will withold less from your normal paycheck. Then change the exemptions back once you recover the addit taxes that were witheld. It may take a few paychecks to recover....but is better than not getting it back until the end of the year (when you complete your taxes).

Good stuff. I learned about maneuvering too late. But i will do this next year.

What i don't get is why not just do bonus method or percentage method and call it a day?