[aileen g]

Employeed in NY, I recently received my bonus check included with my regular salary and
Was told that the bonus pay was taxed at a 24% rate. 401K money was also taken out for the bonus money leaving me with 44% deducted on the bonus pay alone. Is this correct? Is this a state law that the bonus money is taxed at a higher rate? Is it standard practice for a company to deduct a percentage to attomatically go to my 401K?:) Thanks for any insight into this. :confused:

[ebaines]

It seems correct to me. It is indeed common for companies to take out for the 401(k) from bonuses - after all the bonus is part of your total pay, and you authorize a certain percent of pay to be withheld for the 401(k). Every company I ever worked for has done this with my bonuses (and that's 4 companies in the past 10 years). As for income tax withholding - it is common to withhold 25% for federal tax on lump sum payments such as bonuses. This is computed on the amount left after the 401(k) contribution. They also have to withhold for state income tax, social security, and medicare, or course.

[ScottGem]

I think you are mixing up withholding rates and tax rates. The tax rate on bonuses is the same as for salary. When you get your W2 form the bonus amount should be part of your taxable gross.

However, what often happens with lump sum payments is that the withholding rate increases. One of the reasons for this is that the withholding rate is based on an annualized salary. So lets say you normally get $1K a week, but you bonus is $10K, your normal withholding is based on a $52K annual salary. But your bonus withholding may be based on a $520K annual salary. Or, they may just do a lump sum withholding as ebaines suggested.

But the point to consider is that it was just a withholding amount. When you do your taxes this amount will be compared to your tax liability so it may just mean a larger refund.