Just to add another perspective - if you're planning those home repairs around your bonus, remember to factor in not just the withholding but also any state taxes if you're in a state with income tax. Some states follow the federal 22% flat rate for bonuses, but others use different methods. Also, if your bonus pushes you into a higher tax bracket for the year, that portion will be taxed at the higher rate when you file (though only the amount over the bracket threshold, not your entire income). It's worth running some quick calculations or using a tax calculator to estimate your actual take-home before committing to big expenses!

One thing that helped me understand this better was looking at my year-end W-2. All your income - regular wages AND bonuses - just gets lumped together in Box 1 as total wages. The IRS doesn't even know which dollars came from bonuses versus regular pay when you file your return. It's all just "wages" to them. So yeah, like everyone else said, the higher withholding on bonuses is just the payroll system being overly cautious, but it all evens out at tax time. I actually prefer getting that "forced savings" from the higher withholding and then getting a bigger refund, but I know some people would rather have the cash flow throughout the year instead.

I really appreciate everyone's detailed responses here! This is exactly the kind of guidance I needed. It sounds like my main mistakes were: 1. Both my wife and I claiming our child on our separate W-4s (should only be one of us) 2. Not completing Step 4c with the additional withholding amount from the Multiple Jobs Worksheet @Freya Larsen - your explanation about the child tax credit being claimed twice makes perfect sense now. No wonder we're underwithholding! I think I'll start with the IRS Tax Withholding Estimator that @QuantumQuest and @CyberNinja mentioned since it's free and seems to handle the complexity of dual-income situations automatically. If that doesn't work out or I run into issues, I might consider some of the other services mentioned. One follow-up question: when I update our W-4s, should I submit the changes right away or wait until the start of the next payroll period? I want to make sure we start withholding correctly ASAP but don't want to mess up any current payroll processing. Thanks again everyone - this community is incredibly helpful!

Great advice from everyone here! I went through this exact same situation a couple years ago and learned some hard lessons. One thing I'd add that hasn't been mentioned much - if you're making these W-4 corrections mid-year (like now in April), you might want to consider having a bit more withheld than the calculators suggest since you've already been underwithholding for several months. The IRS estimator and other tools assume you're starting fresh at the beginning of the year. Since you've potentially been underwithholding since January, you might need to "catch up" with slightly higher withholding for the remaining pay periods. Also, don't forget that if you end up owing more than $1,000 when you file next year, you could face underpayment penalties even if you fix your W-4 now. The IRS generally wants you to pay at least 90% of your current year tax liability or 100% of last year's liability (whichever is smaller) through withholding and estimated payments. Keep good records of when you made the W-4 changes - this documentation can be helpful if you need to explain any underpayment situations to the IRS later.

This thread has been incredibly informative! As someone who occasionally buys lottery tickets when traveling for work, I never realized how complex the tax implications could be. One question I haven't seen addressed yet - what happens with online lottery purchases? Some states now allow you to buy tickets through official state lottery apps or websites. If I'm physically located in State A but use State B's official lottery app to purchase a ticket (assuming they allow out-of-state purchases), which state's tax rules would apply? Also, does anyone know if there are different rules for group lottery pools? My office has a weekly pool where we buy tickets in whatever state our company headquarters is located, but our employees live in multiple different states. If we won big, would each person be taxed based on their individual state of residence, or would it be based on where the tickets were purchased as a group? These cross-state situations seem way more complicated than I initially thought. Really appreciate all the expert insights being shared here!

This has been such an eye-opening discussion! I had no idea the tax implications could be this complex. I'm a CPA but don't usually handle lottery cases, so this thread has been really educational. One aspect I wanted to add that I haven't seen mentioned yet is the impact on estimated quarterly tax payments. If you win a significant amount mid-year, you'll likely need to make estimated payments to avoid underpayment penalties, especially if you're dealing with multiple states. For example, if you win $100K in July and you're dealing with both your home state and the state where you bought the ticket, you can't just wait until next April to pay all those taxes. The IRS and most states require quarterly estimated payments when you have income that wasn't subject to withholding. Also, don't forget about local taxes! Some cities and counties also tax lottery winnings. New York City, for instance, has its own income tax on top of New York State tax. So you could potentially be dealing with federal, state, AND local tax obligations on the same winnings. The key takeaway from all these great comments is: keep detailed records, understand the rules in both states involved, and don't hesitate to get professional help for larger amounts. The complexity definitely justifies the cost of expert advice!

One more thing worth noting: there's legislation proposed in Congress (Digital Asset Tax Fairness Act) that would specifically address crypto taxation including potentially exempting Bitcoin ETFs from wash sale rules to match the treatment of direct Bitcoin holdings. No guarantee it passes, but this area is definitely evolving. For the TBIL question, I can confirm from my own state tax filing that the interest portion from treasury ETFs remains state-tax exempt. My accountant verified this and showed me where it's documented in my ETF's annual tax document packet. You have to look at the breakdown they provide of qualified vs non-qualified income sources.

This is a really comprehensive discussion! I wanted to add one practical consideration that might help others: if you're actively trading both direct Bitcoin and Bitcoin ETFs, consider keeping them in separate accounts or at least tracking them very carefully. I learned this the hard way when I had overlapping positions and got confused about which transactions were subject to wash sale rules and which weren't. Since direct Bitcoin trades can be tax-loss harvested immediately while ETF trades cannot, having a clear separation helps you optimize your tax strategy. Also, for anyone considering the Bitcoin ETF route, remember that while you lose some of the tax flexibility compared to direct ownership, you gain other benefits like being able to hold them in retirement accounts, no custody concerns, and easier estate planning. It really comes down to your specific situation and investment goals. One last tip: if you're using tax software to prepare your returns, make sure it's updated for the current year. Some of the older versions don't properly handle the nuances between crypto property treatment and ETF security treatment, which could lead to incorrect wash sale calculations.

Consider exploring a self-canceling installment note (SCIN) structure for your family transfer. This approach allows your mother to sell shares to you and your sister through an installment sale, but if she passes away before the note is fully paid, the remaining balance is automatically forgiven without being included in her estate. The key advantage is that you get a built-in estate planning benefit while still providing your mother with steady income during her lifetime. The payments are typically set higher than a standard installment sale to account for the mortality risk, but this can still be more tax-efficient than other transfer methods. Another option worth discussing with your advisors is a sale to a family limited partnership (FLP) where your mother contributes her shares in exchange for partnership interests, then gradually gifts limited partnership interests to you and your sister over time. The limited partnership interests often qualify for valuation discounts (typically 20-40%) for lack of control and marketability, effectively allowing you to transfer more value within gift tax limits. Both strategies require careful documentation and valuation work, but they can provide significant advantages for family business succession planning when structured properly.

This is exactly the type of situation where getting multiple perspectives from qualified professionals is crucial. I went through something similar with our family manufacturing business a few years ago. One strategy that worked well for us was structuring the transfer as a combination of redemption and installment sale. The S Corp redeemed about 40% of my father's shares using accumulated earnings, which gave him immediate cash at capital gains rates. Then my brother and I purchased the remaining shares through a 7-year installment note. This approach reduced the total amount we needed to finance personally while still giving our father the retirement income stream he wanted. The key was timing the redemption to occur in a year when the company had lower taxable income, which minimized the impact on our personal tax situations. Another consideration is whether your mother might benefit from spreading the capital gains over multiple tax years to potentially stay in lower tax brackets. Sometimes the optimal approach isn't the fastest transfer, but rather one that manages everyone's overall tax liability more effectively. Have you looked into whether your S Corp's accumulated earnings and profits could support a partial redemption strategy like this? It might give you more flexibility in structuring the overall transaction.