December 3, 2019

The holidays can be a very expensive time for everyone, especially when it comes to purchasing gifts for family and friends. In order to make ends meet, this may mean that you might pick up some extra shifts at your job, change your withholding status so less is taxed from each paycheck, or perhaps you did so well at your job that you even received a holiday bonus. Regardless of what helps you make more money this holiday season, be cautious of any tax implications it may cause when filing your next tax return. 

Work more overtime 

With the holidays around the corner, you can expect that most employers will ask that you work overtime. This is an easy way to make more money in exchange for working more hours. It is important to keep in mind that overtime will be considered part of your adjusted gross income for the year and if you work enough overtime throughout the year, this could move you into the next tax bracket – which could lead you to owe. If you do end up owing, you will only pay the higher tax rate on the portion of your income that exceeds the income threshold for the next highest tax bracket. 

Going Exempt

Some taxpayers will choose to go exempt for the holidays, meaning they stop withholding to the government and State in order to receive a bigger paycheck back from their employer. Although you’ll be receiving more money back in the short term, it is important to not stay at exempt for too long, as it could potentially lead to you owing the IRS next filing season. If you’re looking for a way to pay fewer taxes on your holiday bonus, consider maximizing your year-end contribution with your 401(k), IRA or a qualifying charitable organization to get a tax deduction. 

You received a bonus

Employers giving their employees extra cash is common around the holidays and can help pay for presents. If you do receive a bonus, this will be considered a supplemental wage, meaning it will also be considered income when it comes time for filing your tax return. Additional types of pay that could be considered income is severance pay, vacation pay, bonuses, moving expenses, overtime and any commission that is received.

 Always be aware of how working overtime, changing your withholdings and receiving a bonus will affect you when it comes time for filing your taxes. Working more hours this holiday season will mean that you most likely get a bigger paycheck and it will also mean that it could move you into a higher tax bracket. Even if you choose to go exempt this holiday season to have more money in your pocketbook, it may lead to you owing at the end of the year. Finally, if you receive a bonus at the end of the year, it will be considered an additional income and will be reported on your tax return. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.