Raise? Or Bonus?

[Anonymous 1]

It's always better to improve your base salary. This applies to anything from future salary negotiations to applying for loans. Bonuses are kind of discounted because they're not guaranteed like a salary.

[RIZZY]

They tax the shit out of bonuses here. Like 30%. So keep that in mind.

Oy. I just read two conflicting articles about it. That pretty much settles it. Don't wanna take the chance.

Here's my understanding of bonuses and taxes. On your IRS income tax return, bonuses go on the same line item as salaries and wages. So you are only taxed more if your bonus amount bumps you into the next tax bracket. But one person with $30K salary and $5k in bonuses vs another person with $35K salary - they are both going to be taxed on $35K income at the tax bracket that $35K puts you in.

Where people talk about high taxes on bonuses I believe is more so in how it's withheld from your paycheck. So say you are paid once every 2 weeks, and your normal gross pay is $2K for the 2 weeks. Well the payroll software looks at that as an annual pay of $52K and withholds based on $52K/year with your W4 inputs. But now say on one paycheck you get a $1,500 bonus in addition to your $2K salary. Now the software is seeing $3,500 for two weeks which it thinks of as an annual salary of $91K and it will withhold accordingly, ie. higher tax bracket so higher tax rate. In short, it withholds a lot more because it thinks you are making more throughout the year.
But at the end of the year when filing your taxes, your total income is still your total income and if too much was withheld because of bonuses, then you will just owe less in taxes or get a bigger refund when you file. Hope that all makes sense.

All that being said, personally I would rather just have it as a salary raise. A set salary seems more steady and reliable rather than a bonus that can increase/decrease each time. My DH gets a base salary with bonuses and anytime I try to create a budget in a spreadsheet it annoys the crap out of me because I feel like I don't know what his monthly income is - it changes with the bonuses.

Ah, okay. Now I get it. Thank you so much!