Is it possible to go tax exempt on a bonus check?

I will be receiving a profit sharing bonus check in November from my company. A few employees have said that there is a way to go tax-exempt on the bonus check but I have not been able to contact our payroll department regarding it. Some employees say I need to fill out a form different from W-4. Does anyone know If a BONUS check can be tax exempt? (I understand that it will affect my return, but I have nothing going on at the beginning of the year, I'd rather have all of it now rather than in Feb or March).

4 years ago - 8 answers

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No you can not claim exempt from the 25% withholding amount that your employer payroll department is required to withhold from the lump sum bonus payment amount.
And even if it were possible it would not be a very smart thing to do because of the taxes that you probably would have to pay at future time when the 1040 income tax return is completed correctly after the end of the tax year.

4 years ago

Other Answers

More than likely, your employer will consider this payment to be a salary payment.

The amount will be reported as wages and will appear on your W-2 in which case, it is not tax exempt.

by RUSerious - 4 years ago

It will be subject to income tax at regular rates on your return. Pay it now or pay it later.

by Obamavenger - 4 years ago

I call the advice you were give "cocktail party tax advice". It's because it is so often bad advice, as in your case.

Unless you are at the poverty level of income, you cannot legally claim exempt. If you do anyway, your employer is obligated to send your amended W4 to IRS who will then do an investigation. If you fail that, they can fine you $500.

So, I would take a pass on that

by kckid2 - 4 years ago

You're getting bad advice. For one thing, bonuses and other irregular payments are subject to withholding at a statutory rate of 25% regardless of what you put on your W-4. The reason for that is to prevent exactly the type of abuse that you are attempting.

In the past, bonuses were taxed as ordinary wages. Employees would run to payroll and submit a new W-4 claiming an absurd number of allowances until the bonus checks were cut and then switch back. Then they'd get a shock at tax time when the discovered that they sometimes owed thousands of dollars in tax on the bonus which kicked them into a new tax bracket. Congress slammed the door on that practice a number of years ago with the fixed withholding on bonuses.

by Bash Limpbutt's Oozing Cyst© - 4 years ago

if your PR dept can effect the W-4 change to exempt for this one check, it is possible
some will and some won't
if you feel your current year to date withheld income tax is sufficient to cover your tax liability for the year, you can probably get by with it

by tro - 4 years ago

No, you cannot become tax exempt for only your supplemental wages. Your employer will take out either a flat 25% or will use your regular withholding schedule from your existing W-4. You employer is required to do this.

File early to get your refund.

by ninasgramma - 4 years ago

A bonus check has 25% withheld for federal income tax, the withholding isn't based on your W-4. And no there isn't a form to fill out for not having tax withheld.

by Judy - 4 years ago