Here in the real world “bonus” means “something you wouldn’t normally get, but because of some special, good, circumstance, you have it.” Like a “reward.” So, when I hear that people at AIG got bonuses for running the company into the ground, I am appalled.
But someplace I read–and of course I can’t find it now–that companies hand out bonuses as a tax dodge.
And I suspect this is true.
But what I don’t get is–whose tax dodge is it? Is this a way for the company to pay less tax or a mutual way for the company and the employee to pay less tax?
Because it sounds like it’s not actually that beneficial for the employee, but I don’t know enough about it to make a judgment.
But here’s why I ask. Say I’m a company and you’re my employee and I say “I’m going to pay you a salary of $100 a year (sorry, we have to keep the numbers small, because I’m an idiot), but I’m going to pay you a bonus every year of at least $100. So, you’ll actually be making $200, but to the Feds, it’s going to look like I’m only paying you $100.”
Now, do you pay tax on the whole $200?
And do you have any way of opting to receive the whole thing as salary?
Here’s why I ask. Because yes, I find it appalling and infuriating that people at AIG got this “extra” money. But it seems clear to me that this wasn’t actually “extra” money. It was part of their promised income from the company and they had little or no way of saying “No, just pay me everything as salary.”
So, if this is a way that companies and employees dodge taxes–by looking like you make x when really you make x + y–then I have no problem with making sure y is taxed as part of your regular income, though I’m still not sold on taxing it at 90% (and this may be the only time in the history of Tiny Cat Pants that I take the side of rich people). There are already tax laws and tax rates on the books that should be applied.
BUT, if this is a way for the companies to dodge taxes and it is of no benefit to the employee one way or another–if the IRS doesn’t care if the company says you made x but they paid you x + y because the Feds want their cut of x+y no matter what–then I strenuously object to taxing y at 90% because this punishes the employee, but has no effect on the corporation who was doing the hinky tax dodge in order to cheat us (as the American people who do pay our taxes and as the Federal Government).
You see what I’m saying? If I pay you $100 and give you a $100 bonus because I promised you $200 and giving you half of it in this way gets me off the hook with the Feds in a way I really shouldn’t be getting off the hook, having the Feds take $90 from you doesn’t even begin to address the problem, even if it makes most folks feel good.
So, can anyone explain to me what’s going on?