Burned By Bonus
Karen and her husband get popped by taxes whenever he gets a bonus and need to plan for it better.
QUESTION: Karen is doing Dave’s plan. Her husband gets a bonus through work, but they never take out enough taxes, so they get clobbered around tax time with the IRS. They make $150,000 a year, and his bonus this year was $105,000. The company withheld 18%, but that’s not enough.
ANSWER: If you make $150,000 and have no bonuses, then you are in a 33% income tax bracket. In that case, everything he makes in bonuses will be in the 33% to 33% bracket. I would hold 40 cents on the dollar to be safe, and if they don’t, then you need to. For $105,000, that’s about $40,000. If they withheld $15,000, then you need to put $25,000 in a money market and be ready.
If they withheld 18%, then you need to hold 22% on yourself to get that extra percentage. When he gets the check, deposit it and write a check from that into savings. That way, you’re fine if you owe money and have some extra savings if you don’t.