For the most part, your W-4 withholding tax form will determine how much of your salary is taxed as an employee. What about additional forms of compensation for workers, such as bonuses and commissions? What if you also have income from investments in real estate or trust funds? Simply put, the taxes system is different.
The IRS classifies income from real estate, trusts, and other sources as “supplemental income,” but bonuses, commissions, and even income from freelancing are commonly referred to as “supplemental income” in common parlance. Find out how to navigate the 2022 tax law changes with the help of a certified Pembroke Pines accountant.
In this article, we’ll discuss the tax implications of numerous forms of supplementary income, both as the Internal Revenue Service defines them and as we describe them.
So, what exactly is extra money?
The phrase “supplemental income” was described above, but the concept will be clearer if we provide some concrete examples. There are a few distinct types of supplementary income:
- A source of supplementary funds (Schedule E income for supplemental income and loss)
Earnings from the following sources are included:
- Business (Partnerships and S companies) (Partnerships and S corporations)
- Inheritance, bequests, and royalties
- Investments in real estate mortgage investment conduits and rental properties (REMICs)
- Benefits for workers that supplement their regular pay
- Supplemental income is money you receive on top of your regular salary if you work a standard 9 to 5.
The Internal Revenue Service counts these payments as wages. Employees may be eligible for additional payments (wages) on top of their normal pay. Examples of this might be:
- Additional compensation from your employer, either seasonal (around the holidays) or performance-based (for your personal or the company’s success), is known as a bonus. Examine the bonus tax rates in more detail.
- Commissions: Some businesses reward employees who bring in business with a cut of the proceeds. Commissions are the name for these sums of money. For instance, commissions based on sales performance are a frequent kind of extra compensation for salespeople.
- Reimbursement of Expenses: Additional compensation can be received through fringe benefits such as reimbursement of out-of-pocket costs. Your company may pay for some of the costs associated with working remotely, such as internet and phone service.
- Overtime pay is additional compensation for working more than a regular workweek entitles you to as a non-exempt employee.
- Accumulated paid time off (PTO) may result in a bonus payment from your employer.