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January 16, 2014

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For 2013? Nothing, the bonus was already paid to you and realized and the withholding already made. Pay what you owe or take your refund.

Going forward, 25% is the proper withholding amount (federal) for bonuses, provided you total income is below $1m. In the case of a substantial bonus, don't worry about adjusting the W-4, just hold 10-15% of the gross bonus in cash until you are close enough to the end of the year to estimate your taxes.

(above is in most cases, some employers classify the bonus as regular wages and withhold accordingly, in which case you should use the IRS estimator to track where you are at on a periodic basis throughout the year)

After receiving your 2014 bonus, submit a new W4 to reduce tax withholdings from your regular pay until the overage is made up. Then submit another W4 that returns to your previous withholding rate.

Go to Dinkytown and use the tax calculator to figure out how much your taxes will be for this year (using 2013 tax laws as a close estimate), adjust for changes you know are going to happen this year and then adjust your w4 using the withholding calculator as Lurker Carl suggests. I do this every year and I usually get pretty close.

Given current risk-free rate, query whether this game is worth the candle. Especially given that there are, potentially, penalties for underpayment. If you are now making enough to bring yourself within the icy shadow of AMT, getting your withholding right will require professional advice.

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