Hi,

I have a couple of questions. I am a non-resident alien who finished his MBA in May 08 and started job in July 08 on F1 visa(OPT). My status will switch to H1B visa from Oct 1 08.

1) What are the tax rates on Moving Bonus(lump sum) and Signing bonus ? Do I have to pay FICA tax(SS and Medicare) on these ? The HR was saying that the bonuses will be taxed at 48% flat. Is that correct ?

2) If the Signing bonus is taxed at regular rates, and if I get it after oct 01 08(havent got it yet although it was supposed to be given with first paycheck), will I be paying FICA taxes on it ?


Will appreciate a response,

Thanks
Bysodus

Yes, FICA and Medicaire taxes are indeed paid on signing bonuses, as are regular income tax withholding. I would expect that they would withhold:

25% for federal income tax
6.2% for SS
1.45% for Medicare
Xx% for state income tax (depending on where you live).

That adds up to somewhere between 32.65% and 40%, depending on the income tax in your state. 48% sounds awfully high. Did they tell you what the amount for withholding of federal income tax would be?

Quote:

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Originally Posted by ebaines

Yes, FICA and Medicaire taxes are indeed paid on signing bonuses, as are regular income tax withholding. I would expect that they would withhold:

25% for federal income tax
6.2% for SS
1.45% for Medicare
xx% for state income tax (depending on where you live).

That adds up to somewhere between 32.65% and 40%, depending on the income tax in your state. 48% sounds awfully high. Did they tell you what the amount for withholding of federal income tax would be?

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No, they told me the percentage.
But what I need to know is that since currently my FICA tax on my regular income is being waived-off since I'm a non-resident alien on OPT, is the same rule applicable to my bonuses?

During F1/OPT your income is not subject to FICA taxes. It includes bonus. But it is doubtful if employer will give you bonus during OPT.

During H1-B, your income is subject to FICA taxes.

Also your taxes will differ if bonus is reported on W2 or 1099-misc. Normally, as per IRS, it should be reported on W2 but many employers report on 1099-Misc and thus save their own share of FICA taxes. Read: Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor.

Also for 2008, you will be working only for about 6 months. So as per my guess, your net tax rate on total income including bonus (including FICA taxes) is not going to exceed 25%.

Quote:

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Originally Posted by MukatA

During F1/OPT your income is not subject to FICA taxes. It includes bonus. But it is doubtful if employer will give you bonus during OPT.

During H1-B, your income is subject to FICA taxes.

Also your taxes will differ if bonus is reported on W2 or 1099-misc. Normally, as per IRS, it should be reported on W2 but many employers report on 1099-Misc and thus save their own share of FICA taxes. Read: Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor.

Also for 2008, you will be working only for about 6 months. So as per my guess, your net tax rate on total income including bonus (including FICA taxes) is not going to exceed 25%.

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This bonus is sign-on bonus so I should be(hoping) to get it while I'm in OPT status. So according to you, the bonus shouldnt be taxed on FICA if paid in OPT? There was some talk about bonus being taxed at the highest rate possible. Is that not applicable here ?

I have to check my W2 to really see what my employer is going to put for moving and signing bonus.

Yes my tax rate for this year wouldn't exceed 25%.

Thanks for your help.
Bysodus

Bonus will not be TAXED at the highest possible rate, but the income taxes WITHHELD will be withheld at the highest possible rate.

So on the income tax issue, you should get some money back when you file your tax return.

As for the FICA taxes, if the bonus is paid DURING YOUR OPT period, FICA taxes do not apply.

If it is paid during the H-1B period, FICA taxes DO apply.

It is really THAT simple.