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I did some contract coaching work for a university and received a one-time payment for the services rendered over 3 months. The amount taxed for Federal Withholding was a staggering 25%. For someone in my low income bracket (hourly wage of $12.50), I had only been paying 8.9% tax on federal income. Did I supply incorrect information?

This source claims that supplemental income is taxed at 25%. It's unclear to me whether coaching work is supplemental.

This source says that payments above or equal to $1,631 have a tax of 25% plus 211.65. However, my federal withholding is exactly 25% of the payment I received (no added 211.65), and it was not a semi-monthly pay cycle either.

Would I pay less money in taxes if the coaching services were payed semi-monthly?

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    If you did contract work - why was anything withheld at all? Did you receive a paycheck (W2 income) or an invoiced payment (1099 income)? – littleadv Jan 11 '15 at 1:10
  • For the contract work I get paid as if I am an employee of the university. I had another job working at the same university as well, and this payment was processed the same way as my bi-weekly payments. – user3898238 Jan 11 '15 at 1:12
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    So its basically an additional job with the same employer, not a contract work. These are different things. As a salaried employee, irregular payments do indeed fall under the 25% mandatory withholding rule. – littleadv Jan 11 '15 at 1:36
  • Supplemental income is not necessarily taxed at 25%, that is, the tax actually due on that income might work out to be at a rate smaller than 25%, but the employer is required to withhold 25% of the supplemental income and send the money to the US Treasury as an income tax payment on your behalf. When you file your tax return for the year, you will likely be due a refund. – Dilip Sarwate Jan 12 '15 at 0:09
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As you clarified in the comments, it is not a contract work but rather an additional temporary assignment with the same employer. You were paid for it in form of a "bonus" - one time irregular payment, instead of regular periodic payments.

Irregular wage payments fall under the flat rate withholding rule (the 25% for Federal, some States have similar rules for State withholding).

This is not taxes, this is withholding. Withholding is money the employer takes from your salary and forwards to the IRS on the account of your tax liability, but it is not in itself your tax liability. When you do your annual tax return, you'll calculate the actual tax you were supposed to pay, and the difference between what was withheld and your actual tax will be refunded to you (or owed by you, if not enough was withheld).

You can control the regular pay withholding using W4 form.

  • It is within the same employer, but they are completely different jobs. For example, I work in a lab but also happen to coach a university club team. Shouldn't that still be contract work? – user3898238 Jan 11 '15 at 3:45
  • @user3898238 you can have several different jobs with the same employer. There's a specific test as to whether you're an employee or a contractor, and as a student it is unlikely that you're a contractor in the sense that the tax law gives to this term. – littleadv Jan 11 '15 at 7:43
  • I am not a student (I'm a graduate/alum). Is there any recourse for this? I know the previous coaches were getting paid by a check. – user3898238 Jan 11 '15 at 21:58
  • @user3898238 I think you'll be better of as employee, tax wise. Just saying.... – littleadv Jan 11 '15 at 22:01
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    @user3898238 Note that as a selfemployed contractor (aka 1099) you would have to pay both halves of the Social Security and Medicare taxes (at least up to the SS cap, currently $117k). That's 15.3%, and at lower incomes is significantly more than the marginal income tax. – dave_thompson_085 Jan 17 '15 at 0:04

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