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Where’s the rest? Why your year-end bonus or gift may have shrunk

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Where’s the rest? Why your year-end bonus or gift may have shrunk
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Americans who are receiving a year-end bonus for a job well done may be sorely disappointed when they open their envelope to find a big chunk missing.

Up to a third of a cash bonus can get swallowed up by the IRS’ special tax withholding on cash bonuses, or what it calls “supplemental income,” on top of Medicare, Social Security and state taxes. The federal flat rate for bonus pay is 22% for supplemental income under $1 million. Add Social Security (6.2%), Medicare (1.45%), and state taxes, and total withholding is roughly 30%-35%.

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“That 22% federal withholding might be higher than your…regular tax bracket,” according to workforce management software company Homebase. “If they usually pay 12%, seeing 22% disappear from their bonus stings.”

Why can this spell financial disaster for Americans?

For the holidays, many Americans may have spent like they were receiving the full amount of the bonus instead of the bonus amount minus taxes, said Kevin Knull, chief executive of TaxStatus, which provides IRS data to financial advisers.

The $10,000 bonus for air traffic controllers who had perfect attendance during the government shutdown isn’t really a $10,000 bonus, for instance. The withholding on bonuses is a flat 22%, plus a 6.2% Social Security tax and 1.45% Medicare tax. Those reduce the bonus to just over $7,000, and you may still have to have state income tax taken out.

“That’s all immediately deducted and goes to Uncle Sam,” Knull said. “Somewhere around 48% of the population underestimate what they pay in taxes. Income taxes take a big bite out of paychecks.” If you spent the entire ‘$10,000 bonus,’ you overspent by about $3,000.

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Separately, Americans should be aware that a bonus can also bump them into the next higher tax bracket if they’re already close to it, experts said.

Some (belated) good news?

If the tax cost of your bonus is less than 22%, or the withholding rate, you’ll receive a tax refund for the difference, or it will be applied to the tax due on any other income, experts said. Bonuses will be taxed as regular income on the final tax return. You’ll just have to wait until you file your 2025 taxes next year to get the money back.

On the flipside, if the tax cost of your bonus is more than the 22% withholding rate, you’ll owe the difference between what was withheld and your total tax cost.

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How can you keep taxes low with your bonus?

If you haven’t maximized your 401(k) or IRA contributions for the year, consider adding some of the money to your retirement fund to reduce overall taxable income come tax season, wrote Kay Bell at financial products comparison site Bankrate. Contrbutions are income tax-free, but withdrawals later are taxed.

The 2025 IRA contribution limit is $7,000, or $8,000 if you’re age 50 or older. The 401(k) limit is $23,500 and an additional $7,500 for age 50 or older except those who are age 60 to 63. Those individuals have a higher catch-up contribution limit of $11,250 instead of $7,500.

Or if you expect your income to be much lower next year, pushing your tax bracket lower, consider asking your employer to defer the bonus until then, she said. You’ll still owe taxes, but you could save money by paying at a lower tax rate.

“However, even if your tax bracket doesn’t change year to year, some like receiving bonuses next year just to move the tax liability to 2026,” said Richard Pon, certified public accountant in San Francisco.

What about non-cash bonuses or gifts?

“Employers and employees may be shocked that gifts are usually taxable,” Pon said.

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Cash and cash-equivalent gifts and bonuses such as gift cards, season tickets to sporting or theatrical events and gift certificates are taxed, Pon said.

“Sometimes employers deduct this from the regular paycheck,” he said. “Other times, employers pay these taxes on your behalf and gross up the income, which can double the cost of a $25 gift card to $50 with taxes if an employer pays the employee share of taxes…you should check your paystub to see if you are taxed.”

A couple of exceptions exist. The first is the “conduit gift,” which is a contribution made to an intermediary organization that then passes the funds to the final intended recipient. For example, if the parent teacher association (PTA) collected and gifted cash or gift cards to staff and faculty, those are conduit gifts and wouldn’t be taxed. The PTA was merely a conduit for gifts paid by parents.

Another exception is if a manager personally gives an employee a cash gift or gift card, Pon said. “That is a personal gift. It’s not a gift from your employer,” he said. Since the manager is “not the employer, those would be tax-free gifts to the recipients.”

He warned though those gifts may cause other frictions at work. “There are a lot of scrooges,” Pon said. “I once worked in an accounting firm and the managing partner complained I was giving gift cards and candy to our admin staff as a token of appreciation of helping me all year. The partner said I was making other managers seem unkind if they didn’t give out gifts.”

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Noncash gifts like hams, turkeys, an occasional ticket to a sporting event or theatrical event are considered a “de minimis fringe benefit,” which is not taxable, Pon said. But note, a coupon or gift card intended to buy a turkey, ham or other item may be taxable, he said.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

Finance

Departing inspector general targets Council Office of Financial Analysis

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Departing inspector general targets Council Office of Financial Analysis

The $537,000-a-year office created in 2014 to advise the City Council on financial issues and avoid a repeat of the parking meter fiasco has failed to deliver on that mission, the city’s chief watchdog said Tuesday.

Days before concluding her four-year term, Inspector General Deborah Witzburg said a shortage of both adequate staff and financial information closely held by the mayor’s office prevents the Council’s Office of Financial Analysis from helping the Council be the the “co-equal branch of government” it aspires to be.

In a budget rebellion not seen since “Council Wars” in the 1980s, a majority of alderpersons led by conservative and moderate Democrats rejected Mayor Brandon Johnson’s corporate head tax and approved an alternative budget, including several revenue-generating items the mayor’s office adamantly opposed.

But Witzburg said the renegades would have been in an even better position to challenge Johnson if only their financial analysis office had been “equipped and positioned to do what it’s supposed to do” — provide the Council with “objective, independent financial analysis.”

“We are entering new territory where the City Council is asserting new, independent authority over the budget process. It can’t do that in a meaningful way without its own access to financial analysis,” Witzburg told the Chicago Sun-Times.

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Chicago Inspector General Deborah Witzburg’s latest report focuses on the Chicago City Council’s Office of Financial Analysis.

Jim Vondruska/Jim Vondruska/For the Sun-Times

But the Council’s financial analysis office, she added, “has never been equipped or positioned to do what it needs to do. It needs better and more independent access to data, and it needs enough staff to do its job. It has a small number of employees and comparatively limited access to data.”

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The inspector general’s farewell audit examined the period from 2015 through 2023. During that time, the financial analysis office budget authorized “either three or four” full-time employees. It now has a staff of five .

Witzburg is recommending a staffing analysis to identify how many people the financial office really needs — and also recommending that the office “get data directly” from other city departments, “ rather than having it go through the mayor’s office.”

The audit further recommends that the office develop “better procedures to meet their reporting requirements” in a timely manner. As it stands now, reports are delivered “sometimes late, sometimes not at all,” the inspector general said.

“We find that those reports have been both not timely and not complete in terms of what they are required to report on and that those reports therefore have provided limited assistance to the City Council in its responsibility to make decisions about the city’s budget,” she said.

The Council Office of Financial Analysis responded to the audit by saying it hopes to add at least three full-time staffers in the short term and has made “some progress” over the last three years in improving their access to data, but not enough.

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The office was created in 2014 to provide Council members with expert advice on fiscal issues.

For nearly two years the reform was stuck in the mud over whether former 46th Ward Ald. Helen Shiller had the independence and policy expertise to lead the office.

Shiller ultimately withdrew her name, but the office was a bust nevertheless. In an attempt to breathe new life into it, sponsors pushed through a series of changes.

Instead of allowing the Budget chair alone to request a financial analysis on a proposal impacting the city budget, any alderperson was allowed to make that request.

The office was further required to produce activity reports quarterly, not just annually.

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Now former-Budget Chair Pat Dowell (3rd) then chose Kenneth Williams Sr., a former analyst for the office, as director and gave him the “autonomy” the ordinance demanded.

Two years ago, a bizarre standoff developed in the office.

Budget Committee Chair Jason Ervin (28th) was empowered to dump Williams after Williams refused to leave to make way for a director of Ervin’s own choosing.

The standoff began when Williams said he was summoned to Ervin’s office and told the newly appointed Budget chair was “going in a different direction, and I’m putting you on administrative leave” with pay.

“He took all my credentials and access away. I would love to come to work. I wasn’t allowed to come to work,” Williams said then.

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Williams collected a paycheck for doing nothing while serving out the final days remainder of a four-year term.

Ervin’s resolution stated the director “may be removed at any time with or without cause by a two-thirds” vote or 34 alderpersons. He chose Janice Oda-Gray, who remains chief administrator.

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Finance

Reilly Barnes Returns to Little League® as Purchasing/Finance Assistant

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Reilly Barnes Returns to Little League® as Purchasing/Finance Assistant

Little League® International has announced that Reilly Barnes accepted a new role as Purchasing/Finance Assistant, effective April 6, 2026. Barnes transitions from a temporary Purchasing Assistant to this full-time position to assist in the year-round demands of purchasing for the organization, as well as the region and Little League Baseball and Softball World Series tournaments. 

“We are thrilled to welcome back Reilly to our team as a full-time Purchasing/Finance Assistant. Reilly’s prior experience, time management, and attention to detail make him an invaluable asset to the purchasing team,” said Nancy Grove, Little League Materials Management Director. “We look forward to the positive contributions he will have on our organization.” 

In this role, Barnes will be responsible for processing purchase requisitions, coordinating souvenir products, and tracking order fulfillment. He will also assist with evaluating suppliers, reviewing product quality, and negotiating contracts for effective operations.  

After most recently working as a Logistician Analyst at Precision Air in Charleston, South Carolina, Barnes, a Williamsport native, returns after honing his skills in the fast-paced environment. Prior to his time at Precision Air, Barnes served as a Procurement Specialist at The Medical University of South Carolina, where his expertise and knowledge were instrumental in supporting both education and healthcare needs.  

“I am thrilled to return to Little League in this full-time role,” said Barnes. “Coming back to my hometown and having the opportunity to work for an organization that has played such a special part of my upbringing means a lot. I can’t wait begin this new opportunity.” 

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Barnes graduated from the University of Pittsburgh in 2022 with a B.A. in Supply Chain Management, Finance, and Business Analytics.  

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Finance

Why this sleepy Swiss town has become a ‘bolt-hole’ for the Gulf elite

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Why this sleepy Swiss town has become a ‘bolt-hole’ for the Gulf elite

As conflict continues to destabilise the Middle East, the Gulf States elite are seeking solace in European alternatives that offer comparable financial benefits with a far lower risk of war on the doorstep. One such destination is the small Swiss town of Zug, which is becoming a “bolt-hole” for Gulf-based wealth, said the Financial Times.

‘Swiss Monaco’

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