By now you've probably heard all the foofarah about Wall Streeters gettng record bonuses this year--and how Goldman Sachs actually UNDERpaid its employees during the year and made up for it with those bonuses.
That's the cruel joke on Wall St.--underpay your staff, overwork your staff, shower them with bonuses from the piles of money they raked in on your behalf, then stick 'em with the consequences.
The dark side of this windfall: taxes. When paid as a bonus, that money doesn't count as wages, tips, or salaries--in other words, no taxes have been paid on it. It's completely up to you to pay those taxes and declare that bonus as income.
Go ahead--try to have a Merry Christmas on what's left over, because that bonus may just be the thing to bump you into a whole new bracket, or worse--AMT. Meanwhile, the company skates away scott-free and tax-free, leaving you to spend your bonus on that shiny new tax bracket!
Next time, I hope the workers opt for comp time--time to rest, do what you want, and not incur any taxes. Perks and benefits would have been a nice, tax-free addition as well.
WWWD: I'd have opted for a paid month or two off (or even a shortened work year) instead of a half-million-dollar bonus.
According to the TV interviews I saw, the lucky brokers are looking to buy things from a vacation home to a fancy car--all the way to a small yacht with their windfall. This will only incur more taxes (and maintenance fees) for them later on in the form of property tax, sales tax, mooring fees, etc.--and these taxes and fees are what make the NE econmomy go round and round. Realtors have even said in the interview that they depend heavily on "bonus time."
Boeing used to have the same effect on the Seattle economy, but no more. The Big Three auto manufacturers also used to have a similar effect on their local economies, especially the Norfolk, VA area. Now that the Ford plant is closing here, the North Carolina border real estate market will undoubtedly soon tank--it seems Ford kept two states going with one assembly plant.
In some homes this year, Santa Claus will be replaced by Uncle Sam for chimney-shimmying, and an audit notice may replace typical stocking-stuffers.
Friday, December 15, 2006
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2 comments:
I thought bonuses were required to be withheld at the highest rate, just to make sure that highly paid CEOs weren't gypping the government out of their cut.
I made a $400 bonus last spring and it was withheld at 30%. Somehow a $267 bonus looks less impressive, and I won't get the rest of it until I file my return in a month or so.
I don't know what rate they get taxed at when they get taxed, but not all bonuses are taxed.
Honest, up-front employers will tax them for you, but most will leave the onus on you to declare the bonus and pay the tax.
This reminds me of what our dear old Uncle Sam did to us: when hubby was medically discharged from the navy, his injury was enough to award him a severance of two year's gross pay. Uncle Sam cut the check, then took 28% tax out, even though we were in the 10% bracket! This led to us having to fight through the IRS to get back that missing 18% that was over-taxed. Two tax return years later, we finally got it back tax-free (I fully anticipated the IRS would tax us again on that over-tax amount). What's worse is that the navy could've just added it to hubby's income for that year and taxed it accordingly, but no--the clerk who made and filed the paperwork elected to make it a whole separate check and account, hence the 28% tax on it in the first place.
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