So joining me now is Kimberly Palmer,
personal finance spokesperson at nerdwallet,
Kimberly thanks so much for coming on the show.
And for people wondering how their bonus will be taxed, what would you tell them?
Well,
the most important thing to know is that
bonuses are actually taxed just like regular income.
But what makes it really tricky is that you get a bonus usually in a
lump sum maybe at the end of the year or the beginning of the year.
And what that means is that employers
can withhold differently than your regular income.
And so what you are getting withheld from your bonus might not match
up with what you actually owe when you file your taxes in april.
And so that's where it can get
Located and what you really want to avoid is a surprise
where you end up owing more money than you anticipate,
which can actually be quite stressful for people.
So it can be really helpful to check your W4,
carefully understand exactly what's being withheld.
You might even need to set aside some extra so
you're ready when it comes time to file your taxes.
Yeah, I think that's good advice. So of course
any methods can really to offset some of these tax liabilities.
Yes.
And first,
let me say I'm not a financial advisor and everyone's situation is different.
So this information that I'm sharing isn't customized.
You can always talk to a tax professional to get that.
But in general,
what's really helpful for people to know
and what's a popular strategy is putting money
into a tax advantage retirement account and so that money that you contribute to a
401k. For example a traditional ira that gives you tax advantages.
It's giving money in on a pre tax basis that lowers your overall taxable income.
So that can be a really helpful strategy.
However you do want to know, make sure you are eligible,
check what you've already contributed.
And of course if we're talking about 2022 the deadline
for four oh one K contributions was december 31st.
So too late for that. But never too late to start planning ahead for this coming year.
You can of course still contribute this year for your
401k. Yeah, let's talk more about that.
I mean what do people need to know Kimberly when it comes
to making some of these portfolio adjustments in the new year?
Well,
I think the most important thing is to consider your own personal situation
and there are so many different things you can do with a bonus.
For example, for a lot of people, especially now given the rising rates,
you might want to consider paying off debt that could be the best
move for you or setting money as side into an emergency savings fund,
you really want to think about your own situation
and what will build up your own security.
Of course it always is fun to, to plan some kind of splurge.
Maybe it's time to finally take a vacation.
There's so many options when it comes to a bonus
for everyone who's lucky enough to get a bonus.
A vacation sounds nice. I don't know, I was thinking about that today.
Maybe that's one of my financial goals Kimberly that I
need to set out a map out here for 2023.
But when it comes to this bonus, is there any way to differ?
Perhaps the taxes associated with it?
This is also a popular option is asking your
employer to defer the bonus into the next year.
Of course you're not avoiding paying the taxes,
it just puts off when they're due and so that
can be helpful if you do need some more time.
Maybe you need to set us inside the money to pay the taxes.
So it can be an option and you can see if your employer is amenable to that,
If that makes sense for you.
Mhm Okay.
Other tips when it comes to bonuses can really anything we should know
as people await some of these checks to actually hit their bank accounts.
Well, the biggest takeaway is to know,
and to understand that bonuses are taxable income,
you cannot get out of paying taxes just because it's a bonus.
So you just want to be sure you're planning ahead for that,
so you're not surprised at tax time.
Alright, Kimberly palmer. Great advice, we appreciate it.
Kimberly is a personal finance spokesperson at nerdwallet