dullard
Elite Member
- May 21, 2001
- 26,185
- 4,844
- 126
Most posters have the facts correct here. That is, in general for most people, it doesn't affect the total amount you'll pay in taxes. But it does affect WHEN you pay those taxes.
However, for certain people, the timing does matter critically. Take me for example. This year, I'm earning right near the maximum limit for some deductions and other finance perks (such as an IRA). If I make a thousand dollars more, the bonus will be taxed at 25% federal tax no matter what. But, now I'll make too much this year and have to reduce my IRA contribution (I could make a contribution, but not for the full $5000). If I were to get a bonus, I'd much rather get my bonus spread out into next year. Same goes for student loan deductions (if I had any) and a few other "you made too much to qualify" programs. Next year, I can choose to earn more and it isn't an issue or cut back on earnings so that I still qualify even with the bonus spread into 2012.
It gets even more complex when you are talkiing about the bonus pushing you into AMT territory where your deductions (mortgage interest, charity, etc) may not count any more.
Since many companies have fiscal years that don't align with the calendar year, their taxes aren't affected by this timing. Thus, they might be willing to spread it out into 2012. Of course, the bigger the company, the less likely they can be flexible to meet all employees' needs.
On the low income side of the issue, taking a lump sum bonus now vs spreading it out for a few months into 2012 may be the difference between qualifying for the earned income credit, welfare programs, school lunch, low income housing, etc.
Tax laws and consequences aren't always black and white like people here like to pretend.
However, for certain people, the timing does matter critically. Take me for example. This year, I'm earning right near the maximum limit for some deductions and other finance perks (such as an IRA). If I make a thousand dollars more, the bonus will be taxed at 25% federal tax no matter what. But, now I'll make too much this year and have to reduce my IRA contribution (I could make a contribution, but not for the full $5000). If I were to get a bonus, I'd much rather get my bonus spread out into next year. Same goes for student loan deductions (if I had any) and a few other "you made too much to qualify" programs. Next year, I can choose to earn more and it isn't an issue or cut back on earnings so that I still qualify even with the bonus spread into 2012.
It gets even more complex when you are talkiing about the bonus pushing you into AMT territory where your deductions (mortgage interest, charity, etc) may not count any more.
Since many companies have fiscal years that don't align with the calendar year, their taxes aren't affected by this timing. Thus, they might be willing to spread it out into 2012. Of course, the bigger the company, the less likely they can be flexible to meet all employees' needs.
On the low income side of the issue, taking a lump sum bonus now vs spreading it out for a few months into 2012 may be the difference between qualifying for the earned income credit, welfare programs, school lunch, low income housing, etc.
Tax laws and consequences aren't always black and white like people here like to pretend.
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