ELI5: Why Are Bonuses Taxed So Much?

It's that time of the year. Bonus season! You got a great review and the numbers to match. You've already made big plans for it. Then the day comes. What?? It's half what I expected. Why are my taxes so high?

This sticker shock is very common. Don't be alarmed, it's not a mistake. Just standard payroll practices.

It's important to remember that taxes are truly only assessed (and paid) once a year - when you file. All the other times you're "paying taxes" is just your payroll friends pre-paying for you. Payroll withholds from your paycheck to make sure you don't get a giant tax bill come filing time.

Payroll can only estimate your annual earnings. They have no idea how much you'll make throughout the entire year. So their software will treat every paycheck as if this is how much you'll make every period (wouldn't that be nice). Your bonus is probably multiples of your regular paycheck and this puts you in a much higher tax bracket. Hence the big tax deduction.

At the end of the day (or more aptly, year). Your taxes will be based on your total income. Come filing time, if your earnings don't justify such high taxes, you'll get back what's rightfully yours.

Comments

Today's Special: Humble Pie

You champion a project, fight for an idea, and then...reality sets in. That churning in your stomach isn't butterflies, it's the realization you've missed the mark. Pride will puff up your chest, and kick in the "defend at all costs" instinct. But arguing with the umpire never changed a call. Admitting you're wrong isn't a sign of weakness. It can strengthen your professional standing. In a world obsessed with the illusion of infallibility, the courage to adjust course is a breath of fresh air. It shows you're confident enough to be wrong, and adaptable enough to learn from it. Do your research, think critically, and stand behind your decisions. But when the data whispers (or screams) otherwise, don't be afraid to swallow that slice of humble pie. Be the first to acknowledge. Don't wait for someone to point out your mistake. Be open, take responsibility, and most importantly, focus on what you're going to do to address it. Don't dwell ...

Starting Really Really Small

On your desk is one of the most intimidating sights known to man. A blank page. The prospect of filling it up with anything resembling decent seems insurmountable. Staring at the long road ahead fills you with anxiety and dread. The first step is the most difficult. So we procrastinate. We " research ", we " prep ", we " plan ". We do everything except tackling the problem. We avoid the pain for as long as we can. To make a blank page less intimidating. Tear it in half. There, half as scary, twice as easy. Still too much? Do it again. And again. Keep doing it until the task is so small that it's too easy not to do. Getting starting is the hardest part. So make the hardest part as easy as possible. This doesn't guarantee amazing results, but it gets you in the game. You can't win if you don't play.

Why We Shouldn't Be Afraid of Ambiguity

Ambiguity. That fuzzy monster that chases us down darkened hallways, whispering doubts about our roadmap and feature sets. You know the feeling. You constantly wrestle with unknowns: Will users like this? Is this the right direction? Frankly, if you had a nickel for every time the answer wasn't crystal clear, well, you might actually want to chase that ambiguity down the hall. But here's the thing: ambiguity isn't your enemy. It's your dance partner. Innovation rarely happens in a land of perfect clarity. Sure, there's a time for well-defined processes. But when you're creating something new, there are bound to be more questions than answers. The key is to learn to waltz with the unknown . Embrace the experiment. Don't be afraid to throw some spaghetti at the wall and see what sticks. Focus on outcomes, not outputs. Don't get hung up on features. What problem are you trying to solve? How will you measure success? Get comfortable with "go...

Herman Ye

Search