Quote:
| I do know, however, that Clinton increased the payroll withholding tax on commission and bonus income from 31% to 36%. That took A LOT of money out of my pocket per paycheck, which I didn't appreciate. And all of us who earn bonuses or commission income continue to pay it. |
This is a little misleading. You are correct that the withholding rate went up, but that doesn't mean that your overall tax rate went up.
So at the end of the year if you made less than $164,550 you would get 8% of that tax withholding back. Meaning that you are really only getting charged 28% for it, not 36%. Withholding doesn't mean anything to me, I only care about my taxable rate at the end of the year.
Your overall tax bracket is based on end of year income earned, so even if you did have to pay the 36% bonus/commission payout, you get it back at the end of the year. You would have to be earning over $350k per year to not get that extra 8% of taxes paid on that bonus back...
I get one or two pretty large bonuses per year so I deal with this, and it isn't that bad. If you know you are going to get hit with this you should raise your withholdings by two or three this way you pay less tax with your regular paychecks, and it all balances out. That is what I do. I pay for less taxes in my regular paychecks knowing that the bonus withholding makes up for the shortfall in my regular paychecks. It all works out the same.