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How to Keep Your Bonus a Secret (Even From Your Family)

Aug. 31, 2012
Personal Finance
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This year I’m receiving a $24,000 bonus—the problem is, I don’t want to tell my wife about it. It’s my hard-earned money, and she’d probably just spend it on something stupid like shoes or makeup or groceries for the kids. If it shows up on our joint tax return, I know she’ll see it. And if she sees it, she’ll try to get her hands on it! How can I keep my bonus a secret from her?

That’s a tough one, because you do have to report your bonus—even if it’s cash—on your tax return. You could file separate tax returns, but married-filing-separately is usually the least beneficial way of filing taxes, since you won’t be eligible for earned income credit, education credit, or child care expense credit. You’ll also be eligible for only half of your capital loss deduction limit, retirement savings contribution credit, and first time homebuyer credit (or do you make your wife sleep in the yard, where she can’t spend your hard-earned dough on pesky expenses like heat and electricity?).

On top of sacrificing many of your tax credits, your request to file separately might arouse some suspicion…so Miss Penny recommends continuing filing jointly. Even if you can successfully hide your bonus from your wife, you can’t keep secrets from Uncle Sam—he needs some new shoes, too. According the IRS, bonuses are considered supplemental wages and therefore subjected to one of two methods of withholding. The percentage method simply levies a 25% tax on the bonus itself, which is a pretty big bite (suitable for a pretty big jerk). Many employers use this method because it’s simpler for their accountants. The alternative is the aggregate method, in which your employer puts your bonus into your regular paycheck. They then calculate the regular withholding amount for the sum of your bonus and your paycheck—this method is more complicated and often more costly to you, since that paycheck will be taxed in a higher bracket.

If your employer has given you a cash bonus, you’ll still have to report the earnings on your taxes. That $30,000 goes on your 1040, line 21, under “other income.” Remember, if you don’t report your cash bonus, you might find yourself in the doghouse and the jailhouse. And don’t even think of trying to get around the tax law by accepting your bonus in non-monetary form, like a vacation or a new car—you still have to report the full value of those bonuses. Plus a tan from Bora Bora or a brand new Honda might be a little harder to hide!