The receipt of a large bonus during the year can definitely cause implications in your tax situation, and being proactive can alleviate potential issues at tax time!
Without knowing the details of your tax situation, it is impossible to project what impact the bonus will have on your tax bracket and overall liability. TurboTax does have a module within the software where you can enter estimated amounts for 2025 and it will project the end result, making it easier to decide if you need to have additional withholdings. The program will show you the amounts on your 2024 return as a comparison, so you can make sure you are accounting for the other items of income and deductions you may have. Instead of using the module inside TurboTax 2024 software, you can also use our Tax Calculator software to estimate your tax liability based on estimated income and deductions you enter into the calculator. You can find the calculator at this link: https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
Often employers will withhold federal taxes on a bonus payment at a flat 22% rate - so if your income puts you in a higher tax bracket, you risk having not enough withheld. Even if you are not above that rate, it is possible that the bonus could have an impact on your other deductions and credits, and therefore may have a significant impact on your tax return. You do have the option to have the employer withhold more on the bonus payment - simply fill out a new W4 form before the bonus payment occurs, and then after that payment, submit another W4 form to go back to the "old" withholdings. It's important to verify with your employer the timing of submitting the new form - you want to make sure you leave time for your employer to process the new W4 form before they process the bonus payroll.
You mentioned opening a Roth account to help with the tax bill of the bonus. Keep in mind a Roth IRA is an after-tax account, so contributing to a Roth IRA will not change your tax situation for the current year. You may be able to contribute to a Traditional IRA account, which could then reduce your tax bill, as a contribution to a Traditional IRA may be deducted on your tax return. However, there are income limits to be able to deduct a contribution to a Traditional IRA, so before planning on this you should check the limits to make sure you are below the threshold for deducting an IRA contribution on your tax return. Likewise, if you chose to contribute to a Roth IRA, there are income limits for Roth contributions, and if your income exceeds those limits you are not eligible to contribute to a Roth IRA.
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