[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...

[Joekerr]

I can't imagine the States is much different in terms of base tax laws, so both base and bonus are taxed similarily, not viewed differently, thus from a tax point of view, doesn't really matter.

But, although comp is the same, I'd still prefer to have a increase my base at expense of the bonus for following reasons:

1. The base is paid periodically through year while bonus is at end, so I get my money sooner which gives me more opportunities to invest
2. If the bonus is declared as a percentage of your base, then if you have a higher base, all things being equal, you will get a higher bonus later on. Right now might be equal, but I'd always want to increase my base.
3. Base pay is sometimes looked at more than bonus in terms of financing. Further, it can serve as a better negotiating point if you were to leave for another firm, in that you would want them to beat that higher base pay.

- A friendly Canadian accountant

[MKSixer]

Income vs. Ifcome.

In the long-run, you need a high base salary to have real income progression.

Where are you in your organization's pay band for your particular role?

[Delta0311]

Higher salary over bonus, is my pick. Your BONUS is NOT guaranteed. I get my bonus every March; it fluctuates... Although it was really sweet this year. Plus the higher the income the higher the bonus.

[RJ_]

What's a bonus?

[silvergray545]

I prefer a higher base.

[Delta0311]

Originally Posted by RJ_

What's a bonus?

It's when master is kind enough to allow you to eat the left overs from the table and not just the crumbs from the floor.

[EL Jeffe 5]

Bonus is just Bull Sh*t they tax half.
IMO Higher base is better

[Mr Tonka]

Out of the people i employ, the ones who are straight commission earn the most. Less risk to me (they make money if i make money) more i can afford to split with them.

If things go south, the first people i'll have to let go are the high salary sales people. All the straight commission sales people won't be affected.

[MrRoboto]

If your bonus is tied to performance and you are a high performer then higher bonus for sure.

[ASBSECU E93]

Base vs. Bonus: My thoughts.....

Some of this will depend on how the bonus structure is set, and if this is realistically achievable....

Ideally - you want a high base with additional potential (Matrix) for exceeding expected stretch goals. However - If you are limited on the Bonus side based on factors that you cannot control - time value of $$ being paid each month is far better than a lump sum.

Lastly - controlling your tax withholding is tricky, but necessary to maximize your monthly cash flow. For example - if you receive a Tax Refund each year, increase the deductions to basically 'break even' on what is paid.

[bbbbmw]

Federal Withholding tax on bonuses and commission is something like 35%, regardless of what your salary withholding is set at. Add in any state taxes and 401k contribution or other set-asides, and you prob do get about 50% in your hand. It gets equalized when you file your taxes, but the govt holds onto any difference all year long.

IIRC, Clinton set the higher withholding into place in the early 1990's.

[ASBSECU E93]

Mr Tonka - you hit the nail on the head from the employer perspective.

I loaned a large sum to a water bottler last year. The IS and BS for this company is CRAZY strong....

He migrated from a Distributor and Supplier to a Supplier model with franchise and exclusive brand agreements in targeted growth areas.

Eliminated the overhead and takes a % of sales from each franchise. The harder they work and make, the more he makes - without the headache and expense...

[Mr Tonka]

Originally Posted by EL Jeffe 5

Bonus is just Bull Sh*t they tax half.
IMO Higher base is better

*I belive* they only tax a higher amount because it's taxed as if their pay for that period will be their pay for all periods. So the tax bracket generally moves up for bonus. You can work with your HR department to change your W4 temporary or just ask them to withhold a different amount for that pay period. In FL anyway.

[///Mongo]

base > bonus

Bonuses are discretionary

[ASBSECU E93]

bbbbmw - Big difference in my monthly paycheck is I file Single and 0 vs. Single and 6....

I control what I pay over the course of the year because I have additional deductions via single member LLC's that flow through my personal TR schedules...

This is a moving target annually, but I have a very good idea based on my outlay of annual reoccurring expenses plus CapEx.

[GATORB8]

Originally Posted by bbbbmw

Federal Withholding tax on bonuses and commission is something like 35%, regardless of what your salary withholding is set at. Add in any state taxes and 401k contribution or other set-asides, and you prob do get about 50% in your hand. It gets equalized when you file your taxes, but the govt holds onto any difference all year long.

IIRC, Clinton set the higher withholding into place in the early 1990's.

You may want to contact HR to modify your bonus withholding, or modify your W4 exemptions to make up for that additional withholding if you can project your bonus amount.

I assume the high withholding is because they're using the aggregate version of bonus withholding, which adds your bonus to that pay check and calculates the withholding as if you actually received that entire amount as your salary for that week, which I assume puts you in the highest tax bracket for much of that paycheck.

My HR team is able to modify my bonus withholdings to a specific percentage, which I establish based on my previous year's effective tax rate. I'm normally able to keep my overall annual tax refund or liability under $500 with that method, thus maximizing cashflow.

[BayMoWe335]

All about that base...

[Axius]

Originally Posted by BayMoWe335

All about that base...

Did you really just make a Megan Trainer (sp?) reference....,


I really wish we still had a dislike button.

[UncleWede]

Biorin must be just FLOWING somewhere with all this talk.

IF pension or 401k matches from employer, base is better.

[Biorin]

Originally Posted by Mr Tonka

*I belive* they only tax a higher amount because it's taxed as if their pay for that period will be their pay for all periods. So the tax bracket generally moves up for bonus. You can work with your HR department to change your W4 temporary or just ask them to withhold a different amount for that pay period. In FL anyway.

Originally Posted by EL Jeffe 5

Bonus is just Bull Sh*t they tax half.
IMO Higher base is better

Edit: removing this... see next post.

[BayMoWe335]

Originally Posted by Axius

Did you really just make a Megan Trainer (sp?) reference....,


I really wish we still had a dislike button.

Who?