Found out my dismissal compensation at my prior workplace was ready, decided to be-bop down there with Barry then take him for some dinner.
The net was appx 1/3 less than the gross amount. The percentages break down -
GROSS +100.00%
| FIT | -12.63% |
| SSI | -6.20% |
| MEDI | -1.45% |
| SIT | -4.47% |
| SDI | -1.00% |
| 403 (B) | -3.00% |
| OTHER | -2.82% |
MY NET -64.43%
Notice that this total of all the deductions and my net now appx total the gross distribution of 100%.
Amazing that almost 1/3 of the gross goes for all this stuff! And I TOTALLY forgot that the retirement stuff still came out. I gotta do something about that.
NORMALLY, a company has two ways to go to figure out the Fed and State tax withholding. Some background:
If you read the tax code, you will notice that the Internal Revenue Service goes to great lengths to categorize different types of income and treat them differently. Bonuses are another example of this. In the eyes of the IRS, bonuses are typically categorized as “supplemental wages.” As a University of Minnesota summary explains:
“The IRS defines supplemental wages as compensation paid in addition to the employee’s regular wages that includes, but is not limited to, severance or dismissal pay, vacation pay, back pay, bonuses, moving expenses, overtime, taxable fringe benefits, and commissions.”
As such, bonuses (like other supplemental wages) are treated differently than ordinary wage or salary income. There are two ways of taxing bonuses: the percentage method and the aggregate method.
1. THE PERCENTAGE METHOD:
The IRS specifies a flat “supplemental rate” of 25%, meaning that any supplemental wages (including bonuses) should be taxed in that amount. If you receive a $5,000 bonus, under this rule, $1,250 (25% of $5,000) goes straight to the IRS. Using this approach, the amount of your bonus – whatever it is – is “singled out” from the rest of your income and taxed directly. Employers frequently choose the percentage method because it’s easy and mindless to tax the entire bonus at a uniform rate.
2. THE AGGREGATE METHOD
Unlike the much simpler percentage method, the aggregate method is when your employer adds the amount of your bonus (say, $5,000) to your most recent regular paycheck. Then, they determine the normal withholding amount based on IRS withholding tables for the sum of both amounts, subtract what was already withheld from your last paycheck, and withhold the rest from the bonus amount.
For my severance, Goodwill used the aggregate method, which was using my tax withholding rate that was in their system vs the flat out 25%. Which was a GOOD thing.
BUT DON'T FORGET...THAT'S ONLY FEDERAL!!!
California COULD'VE withheld 6.6%, but again, Goodwill used the 'aggregate' method utilizing my on board withholding from my most current W-4 and only took out 4.47%.
MORE TO COME...
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