The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: pipercat on March 29, 2014, 10:01:54 AM
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DH's company was recently sold to a different company. This is not uncommon in his field. Anyway, when he had his annual review, he was told that he is at the top of the salary scale for our geographic area, but his supervisor was going to recommend that he get a 3% raise anyway. He has been given the song and dance about being at the top of the salary scale for years, but his raises continue to be approved. Fine.
Well, a couple days later, he got a call from "corporate". They told him the same thing about being at the top of the salary scale, and they asked if he would be willing to take the 3% "raise" in one lump sum (sort of like a bonus instead of a raise).
He thought that was odd, and he said no. They seemed agreeable at that point, but I just found it to be an odd request.
Does anyone else think this is odd? Why would he accept a bonus (which is more heavily taxed) rather than a raise?
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It's easier to not offer the "bonus" next year, rather than be committed to a salary increase. . .
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A raise affects your salary this year and in all future years. A bonus or lump sum only affects your salary this year, and is not recurring. If you're only going to work one more year, then they are functionally equivalent. For most people, the raise is a much better deal because it's like a bonus that you keep getting every year.
Now if they offered me a 3% raise or a 30% bonus, I'd have to think about it.
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Does anyone else think this is odd? Why would he accept a bonus (which is more heavily taxed) rather than a raise?
If they're the same amount of money, whether it's all at once or spread out during the year, you'd pay the same amount of taxes on it. There may be more withheld from a bonus, but that doesn't mean it costs more in tax.
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Does anyone else think this is odd? Why would he accept a bonus (which is more heavily taxed) rather than a raise?
If they're the same amount of money, whether it's all at once or spread out during the year, you'd pay the same amount of taxes on it. There may be more withheld from a bonus, but that doesn't mean it costs more in tax.
This. Bonuses are not taxed any higher than regular salary payments. The withholdings might be different but at the end of the year when you file, the taxes on a $12,000 bonus are the same as the taxes paid on $1000 a month in salary.
My concern would be that if it was treated as a bonus rather than a salary, that next year's 3% (or whatever) raise would not include the increase from this year, if they considered his salary to be the pre-bonus amount so he'd lose the benefit of the compounding effect of those raises.
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The definition of compensation in the retirement plan may exclude bonuses, thereby reducing matching contributions or profit sharing contributions. Or other comp based benefits.
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I have been "maxed out" for years. If the company gives a raise I get a lump some payment. The problem is that it based on my normal FT hours. If I would of had my base pay raised I would make more money when I take call.....which I do a lot of. And it does not give me more for 401K match. So in my case the company is getting a much better deal by giving lump some than increasing the top salary cap.
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I have been "maxed out" for years. If the company gives a raise I get a lump some payment. The problem is that it is based on my normal FT hours. If I would of had my base pay raised I would make more money when I take call.....which I do a lot of. And it does not give me more for 401K match. So in my case the company is getting a much better deal by giving lump some than increasing the top salary cap. If given the choice I would have my base pay raised.