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Old 11-27-2012, 09:23 AM   #1
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How are bonuses taxed in Iowa?

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Lets say on top of your salary you get an annual $2000 bonus. How much of this will be taxed when you report it. What are the penalties for not reporting it? Fraud? How does your employer report it?
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Old 11-28-2012, 01:27 AM   #2
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“Lets say on top of your salary you get an annual $2000 bonus. How much of this will be taxed when you report it. “------>Employers have the option on bonus payments of withholding tax at the same rate as your regular paychecks or at a flat 25 percent. Many employers chose the 25 percent option. This choice makes the calculation easy and avoids trying to find out if the bonus puts the employee into another tax bracket. The 25 percent withholding rate can be used on bonus payments up to $1 million. Above $1 million, the amount of bonus above that level is withheld at 35 percent.For fed taxation, Social Security and Medicare taxes will also be withheld from your bonus check. If you have earned less that $110,100 for 2012, -- Social Security taxes will be withheld at a rate of 4.2 percent. The Medicare tax of 1.45 percent is withheld from all earnings including any bonus payments with no cap on the amount of income for the year. In total, Social Security and Medicare taxes can take up to 5.65 percent of your bonus check. Most states and many cities have an income tax on wages. These taxes will also come out of your bonus check. If you live in a high tax state, the amount can be significant. States with high income tax rates include Hawaii, Oregon, New Jersey, Iowa, New York and North Carolina. Adding together federal, Social Security, Medicare and a tax rate of IOWA state income tax provide a total possible withholding rate of higher than 32.5 percent. If you were paid a $10,000 bonus, the take-home portion after all these taxes would be $4,750. It is possible you will receive some of the withheld taxes back when you file your tax return. Bonus money is not actually taxed at different rates, the withholding is just different. If too much tax was taken from your bonus, the money will come back in your tax refund.Yo need to contact IOWA Dept of Rev for more info on taxation on bonus income.

“What are the penalties for not reporting it? Fraud? “----->Late taxes in Iowa are subject to certain penalties. Iowa residents who do not file taxes on time, and pay less than 90 percent of taxes owed upon filing, are subject to a 10 percent tax penalty. The 10 percent penalty is levied on unpaid taxes, not the total taxes owed for the year. Therefore, if an Iowa resident owes $1000 in taxes, files late, and pays $600 of the $1000 owed, the remaining $400 is subject to a penalty charge of 10 percent. That taxpayer will owe $440, rather than $400, after the penalty. State taxes filed on time but not paid in full are subject to a penalty. Iowa citizens who submit annual income tax returns on time but pay less than 90 percent of taxes owed upon filing are subject to a 5 percent penalty. As with the 10 percent penalty on late taxes not paid in full, the 5 percent penalty levied on promptly filed taxes is applied exclusively to the remainder owed after the return has been filed with the state. Whether or not a tax return is filed on time, Iowa residents who fail to pay taxes in full are subject to interest penalties if income taxes remain unpaid. The late penalty is levied at a non-compounding rate of 0.4 percent per month. For instance, an Iowa resident owes $1000 in taxes but pays only $600. The 5 percent penalty is levied, such that the resident now owes $420. The resident pays the taxes six months late, so they are subject to 2.4 percent interest, that is, 0.4 x 6 months. However, the 5 percent penalty is not subject to interest. So, $400 at 2.4 percent interest is (400 x 0.024) + 400, or $409.60. Plus the 5 percent penalty of $20, the taxpayer now owes $429.60.In IOWA, the penalty for willful failure to file a return is 75% of the tax due; ALSO, I f you filed a return late (more than 60 days old), or you did not file, and the IRS can prove it was "fraudulent" or that you did not file to evade taxes, then, you could be facing a stiffer Failure to File Penalty. Instead of incurring the normal 5% per month penalty on the amount owed, you would be facing a 15% percent per month penalty with a maximum 75% total penalty. If you experience a Fraudulent Failure to File Penalty and Failure to Pay Penalty in the same month, the former is reduced by .5%. It is important to understand that his type of penalty is not normally assessed. Some reasons the IRS may assess this penalty:

“How does your employer report it?”-----> The IRS has rules that employers must follow when withholding taxes from bonus income. How much is withheld and what system is used to calculate this amount depends primarily on how much bonus income is involved. If the bonus income is less than $1 million, employers have a number of options when it comes to withholding. This usually depends on your tax bracket, the number of exemptions you claim on your W-4 form and if the bonus is paid with regular wages within a pay period or treated separately as bonus income. The IRS treats bonus income as supplemental income. The amount of tax you eventually pay on the bonus income when you file your tax return depends largely on your personal circumstances. Your entire income, as well as deductions you claim, are taken into consideration at this point. However, many employers just withhold 25 percent of your bonus income to be on the safe side. Find out from your employer what system is used in withholding. Other employers may simplify their bookkeeping by providing employees with a lump sum bonus and reporting the amount to the IRS on a 1099-MISC form. When preparing tax returns, employees receive a copy of the 1099 and must declare it as income at the end of the year. In this situation, if payroll tax surpluses do not cover the tax liability for the bonus, the employee must pay the balance when filing taxes. Employers are not required to submit a 1099 if an employee's bonus was less than $600, though employees must claim the income at the end of the year.
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