Impact when receiving a big bonus

[family57911]

Single income W2 family.  My base pay will be about the same this year as last, but 2 things have me wondering if I should updated my W-4.  The first is that I noticed on this year's return that I'm now getting a slightly lower child tax credit, or whatever it is, as my oldest turned 17 last year.  This was a surprise, and seems kind of random, but whatever.  The second oldest will be turning 17 next year, so it seems like at some point I need to increase my W-4 withholdings.  The bigger change is that this year I received a bonus that is roughly equal to my annual salary, and the same is likely for next year.  This was taxed, but I don't want a big surprise on my next filing.  I'd rather err on the side of getting a little more back on the return, than having to pay a lot.

[JBedford · Accepted solution]

Hi, @family57911 , great questions! It sounds to me like a visit to our free W-4 Calculator might be very helpful to you, since your children are "aging out" of the Child Tax Credit. In regards to your bonus, withholding on bonuses is generally at a higher rate (22%) than your normal wages. If that's your tax bracket, then that might be sufficient. For 2023, the 22% tax bracket covers the income range $89,450 to $190,750, if you're Married Filing Jointly. But if you're in a higher tax bracket, then you'll definitely want to consider that the withholding might not be sufficient. Again, I think the W-4 Calculator will be super helpful. Please let me know! 

[OpeA1]

Hello!

Yes, you are correct - when the child turns 17 years old, the child tax credit is reduced from $2500/child to a dependent credit of $500.

Also, the bonus is taxed on payment, but it will be good to run your expected numbers through a tax calculator to find out how much you need to withhold. If you find that you are not withholding enough, you can make an estimated payment directly to the IRS or ask you HR office for another W-4 and increase the amount you want withheld by using item #4 where you can include a dollar amount.

Here is the link to out tax free calculator: https://turbotax.intuit.com/tax-tools/calculators/w4/ 

Thank you for using TurboTax!!