[StatenEye]

Originally Posted by shivaswrath

All things equal,
I just got my bonus today, and after taxes managed 50%-is it better to have a higher base and lower bonus if total compensation is equal?

Need some math whizzes and/or accountants to weigh in. Assume 39.6% tax bracket...

Based on your question I'm assuming you're concerned with your tax rate - base vs bonus. If you are taxed @ 39.6 percent then you are earning nearly 500k annually before bonus since you received your bonus in q2 and are already scaled into the 39.6% tax bracket - so all of your paychecks will be taxed the same exact rate as your bonus 39.6% Federal. The ones that notice this and say "I'm taxed way more on my bonus than my paycheck its not fair!!" are the ones that earn a 100k salary say~ 4.5k per pay period and then get a 20k bonus putting them in the top tax bracket for one pay period. So you shouldn't see a different tax rate on your bonus since you are already in the top tax bracket.

99.9 % of the time large bonuses are structured via differed comp and mature over a 5 year period to stop turnover after payout. Seems like you have a nice gig since you are still seeing a high liquid bonus. Either way, to answer your question - it doesn't matter - 1. you don't have a choice as your firm makes that decision and they are more likely to pay a performance based discretionary bonus than add a higher fixed cost to their balance sheet 2. You will be taxed 39.6% federal on your total earned income. So bonus or base is the same to someone in the top tax bracket.

Lastly whether you fall in the bottom, middle or highest tax bracket your bonus will be taxed the same as all your other earned income so no need to include your tax rate. (This is taxed not withheld)

BTW its obviously close to 50% bc you are not only withholding federal on your bonus but like I stated before you have been taxed at this rate for all of Q1 so there really should be no question here.

[zx10guy]

Originally Posted by Mr Tonka

IT world if full of chumps. The men in my industry won't put up with that crap.

J/K my industry is small enough where all the employers pay the same commission scales. You mess with the commissions and they all walk, usually taking many of the customers with them.

Maybe I need to talk to you about the industry you're in.....

I've joked about maybe working in IT sales as an engineer for about another 10 years; then afterwards working at Geek Squad. But I'm actually half way serious. Hopefully by then, I'll have saved up enough money to give me options.

[Grip Grip]

Higher bonus for sure. When the economy takes a crap again, you dont want to be the one with the largest salary in your department. I say longevity for the win.

[eluded]

At the end of the day it's what's on your W-2 that counts.

[gary88]

Always take a higher base. Bonuses are not guaranteed.

[csu87]

I always go higher base. So far, it has worked out in my favor. There will be that time that the performance isnt there to justify a big bonus and you wont get it, but it is a lot harder for an employer to drop your base pay.

Also, like was mentioned, financing most times factors in base pay only, since most bonuses are guaranteed. And if you have a guaranteed amount of bonus, its just deferred base pay.

Another thing to think of is if you change jobs. At least in my experience, they bonuses arent what employers are trying to match, since again, not guaranteed, but rather the base pay. As Ive been recruited and switched companies, base pay is always the thing that gets brought up and bonuses are after thoughts.

[shivaswrath]

Originally Posted by csu87

I always go higher base. So far, it has worked out in my favor. There will be that time that the performance isnt there to justify a big bonus and you wont get it, but it is a lot harder for an employer to drop your base pay.

Also, like was mentioned, financing most times factors in base pay only, since most bonuses are guaranteed. And if you have a guaranteed amount of bonus, its just deferred base pay.

Another thing to think of is if you change jobs. At least in my experience, they bonuses arent what employers are trying to match, since again, not guaranteed, but rather the base pay. As Ive been recruited and switched companies, base pay is always the thing that gets brought up and bonuses are after thoughts.

That's my preference too - now to negotiate with HR on this!

[jtodd_fl]

Originally Posted by shivaswrath

That's my preference too - now to negotiate with HR on this!

I don't think you ever mentioned what department you are in. If it is sales, then negotiation often centers around OTE (On target earnings). I have found that this actually opens up avenues of negotiation. For example, to pick a random number, let's say you work somewhere and your OTE is $200K, with a 50/50 split between base and commissions/bonus. When you go to a new job, you have three things to negotiate, and since they likely have a set formula, all boats rise with the tide. What I mean is, they may do a 67/33 base commission split. But, why would you ever go down in your commissionable earnings! Therefore, that same $100K should be what they pay you in commissions (for performance). Well, if that is 33%, instead of 50%, your OTE would go to $300K, instead of $200K. Now, you probably aren't going to get that, but it is a negotiation point. Gives them three targets to hit instead of one - and you can be "giving" to get. Well, I'll go ahead and go down to $80K commissionable from $100K, because I want to work with you.... I am GIVING up $20K of incentive comp "for you". ($240K is now OTE - you just got a 20% raise.) YMMV

[protecon]

When in doubt, always go with higher bass.

[jtodd_fl]

Originally Posted by protecon

When in doubt, always go with higher bass.

[jlstyle]

Of course higher income without a doubt

[protecon]

Originally Posted by jtodd_fl

...

[jtodd_fl]

Originally Posted by protecon

..

[Biorin]

Originally Posted by jtodd_fl

At least post the Gibson SG... Epiphone *shakes head*

[jtodd_fl]

Originally Posted by jlstyle

Of course higher income without a doubt

FWIW, both base and bonus are income. If you end up having to pay your company a bonus, something went horribly wrong in negotiation. In fact, the only argument for taking bonus over base is to achieve higher income.

Pedantic pedant is pedantic. Sorry.

[bimmerfrk]

Higher base in my opinion. I work in finance and if the market sucks that year so does your bonus. But your base will always be there.

As stated the higher you base the more you bonus will be. For me my bonus is typically 25% of my base.

[joots]

I thought bonus is only taxed at 25%?

[bimmerfrk]

Originally Posted by joots

I thought bonus is only taxed at 25%?

nah for me its close to 50% being in NYC and they take some as well.

Its pure bullshit

[shivaswrath]

Originally Posted by StatenEye 535i

Based on your question I'm assuming you're concerned with your tax rate - base vs bonus. If you are taxed @ 39.6 percent then you are earning nearly 500k annually before bonus since you received your bonus in q2 and are already scaled into the 39.6% tax bracket - so all of your paychecks will be taxed the same exact rate as your bonus 39.6% Federal. The ones that notice this and say "I'm taxed way more on my bonus than my paycheck its not fair!!" are the ones that earn a 100k salary say~ 4.5k per pay period and then get a 20k bonus putting them in the top tax bracket for one pay period. So you shouldn't see a different tax rate on your bonus since you are already in the top tax bracket.

99.9 % of the time large bonuses are structured via differed comp and mature over a 5 year period to stop turnover after payout. Seems like you have a nice gig since you are still seeing a high liquid bonus. Either way, to answer your question - it doesn't matter - 1. you don't have a choice as your firm makes that decision and they are more likely to pay a performance based discretionary bonus than add a higher fixed cost to their balance sheet 2. You will be taxed 39.6% federal on your total earned income. So bonus or base is the same to someone in the top tax bracket.

Lastly whether you fall in the bottom, middle or highest tax bracket your bonus will be taxed the same as all your other earned income so no need to include your tax rate. (This is taxed not withheld)

BTW its obviously close to 50% bc you are not only withholding federal on your bonus but like I stated before you have been taxed at this rate for all of Q1 so there really should be no question here.

I am too - I asked my accountant again, and he said I'm a tier below 39.6, apparently in the 36%, but 4% came from Obama care and Social security this year, so that brought me/wife up to 40%!

Originally Posted by jtodd_fl

I don't think you ever mentioned what department you are in. If it is sales, then negotiation often centers around OTE (On target earnings). I have found that this actually opens up avenues of negotiation. For example, to pick a random number, let's say you work somewhere and your OTE is $200K, with a 50/50 split between base and commissions/bonus. When you go to a new job, you have three things to negotiate, and since they likely have a set formula, all boats rise with the tide. What I mean is, they may do a 67/33 base commission split. But, why would you ever go down in your commissionable earnings! Therefore, that same $100K should be what they pay you in commissions (for performance). Well, if that is 33%, instead of 50%, your OTE would go to $300K, instead of $200K. Now, you probably aren't going to get that, but it is a negotiation point. Gives them three targets to hit instead of one - and you can be "giving" to get. Well, I'll go ahead and go down to $80K commissionable from $100K, because I want to work with you.... I am GIVING up $20K of incentive comp "for you". ($240K is now OTE - you just got a 20% raise.) YMMV

I'm not field based sales in pharma, I'm in head quarters, so performance is based on person (33%), division (33%), and company (33%). Thankfully, company did amazing last year, and so did the division, and I managed to get promoted, so my bonus was the highest I've ever seen (actually ever in my life). So I'm ready for disappointment moving into next year ;-)

[jtodd_fl]

Originally Posted by shivaswrath

I am too - I asked my accountant again, and he said I'm a tier below 39.6, apparently in the 36%, but 4% came from Obama care and Social security this year, so that brought me/wife up to 40%!

Well, hopefully your effective tax rate will be lower than the full double-barelled 40%.

Originally Posted by shivaswrath

I'm not field based sales in pharma, I'm in head quarters, so performance is based on person (33%), division (33%), and company (33%). Thankfully, company did amazing last year, and so did the division, and I managed to get promoted, so my bonus was the highest I've ever seen (actually ever in my life). So I'm ready for disappointment moving into next year ;-)

Hehe... so you probably got POUNDED at tax time. "Best year ever" will do that to you. Poor guy. I feel you though... Monday was a tough day...