Postponing the bonus to next year. Is it a good idea?

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celentano
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Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 12:28 pm

Every year in December my wife gets a bonus where she works. This year we need to postpone the bonus to January (if employer can do it) so that we end up with a lower taxable income for the tax year 2018. Would this be legal?

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dm200
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Re: Postponing the bonus to next year. Is it a good idea?

Post by dm200 » Mon Oct 08, 2018 12:30 pm

celentano wrote:
Mon Oct 08, 2018 12:28 pm
Every year in December my wife gets a bonus where she works. This year we need to postpone the bonus to January (if employer can do it) so that we end up with a lower taxable income for the tax year 2018. Would this be legal?
Seems to me that the first question/issue is whether the employer can or will do it.

My "guess" is no - but just a guess.

bryanm
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Re: Postponing the bonus to next year. Is it a good idea?

Post by bryanm » Mon Oct 08, 2018 12:31 pm

I don't see why not. The employer might not want to do it, since it changes their books for the year. I assume you don't want to or cannot defer the income some other way (e.g., 401(k) contribution or Traditional IRA)?

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 12:38 pm

All other ways are used up. This was only option left. Thanks to this great forum I got real good feedback some other 'creative' way I thought I could accomplish this (in the Investing section). Can employer have problem with just not giving the bonus at all? I want to ask the employer once I know it can be done. By the way were talking about a small employer with few people on the payroll.

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dm200
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Re: Postponing the bonus to next year. Is it a good idea?

Post by dm200 » Mon Oct 08, 2018 12:41 pm

celentano wrote:
Mon Oct 08, 2018 12:38 pm
All other ways are used up. This was only option left. Thanks to this great forum I got real good feedback some other 'creative' way I thought I could accomplish this (in the Investing section). Can employer have problem with just not giving the bonus at all? I want to ask the employer once I know it can be done. By the way were talking about a small employer with few people on the payroll.
That may be the key. Often, small employers may have more flexibility in such payroll issues and choices.

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CalculatedRisk
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Re: Postponing the bonus to next year. Is it a good idea?

Post by CalculatedRisk » Mon Oct 08, 2018 12:44 pm

celentano wrote:
Mon Oct 08, 2018 12:38 pm
Can employer have problem with just not giving the bonus at all?
Why would you not want the bonus? The bonus doesn't change the tax rate for the rest of your income--it only changes the marginal tax rate (e.g., the tax rate on the last x% of income you earn.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 12:57 pm

The reason is to keep the MAGI below the cliff for ACA premium tax credits. I described the situation in detail on the Investing section. Thanks.

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dm200
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Re: Postponing the bonus to next year. Is it a good idea?

Post by dm200 » Mon Oct 08, 2018 1:00 pm

Do not know the answer - BUT there may or might be some IRS (or other applicable) rules requiring taxable income be reported in the period/year when the work is done.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 1:06 pm

Oh no! That is a good point. There may or might be something. Now, how do I find out the fact without getting an accountant. I wonder which page out of 80,000 pages will have that info.

Globalviewer58
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Re: Postponing the bonus to next year. Is it a good idea?

Post by Globalviewer58 » Mon Oct 08, 2018 1:06 pm

I have worked at companies that offered a deferral on bonus payments from December to January. The company used the Accrual Method to account for expenses so it made no difference to them. Your situation is that you use the Cash Method of accounting so you can benefit by shifting from one tax year to another.

Good luck!

J295
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Re: Postponing the bonus to next year. Is it a good idea?

Post by J295 » Mon Oct 08, 2018 1:09 pm

Research the constructive receipt doctrine

mortfree
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Re: Postponing the bonus to next year. Is it a good idea?

Post by mortfree » Mon Oct 08, 2018 1:27 pm

Decline the bonus

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dm200
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Re: Postponing the bonus to next year. Is it a good idea?

Post by dm200 » Mon Oct 08, 2018 1:30 pm

celentano wrote:
Mon Oct 08, 2018 1:06 pm
Oh no! That is a good point. There may or might be something. Now, how do I find out the fact without getting an accountant. I wonder which page out of 80,000 pages will have that info.
That is, in my opinion, the decision and responsibility of the employer.

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PrettyCoolWorkshop
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Re: Postponing the bonus to next year. Is it a good idea?

Post by PrettyCoolWorkshop » Mon Oct 08, 2018 1:56 pm

Here are some pages about the constructive receipt doctrine. A bit less than 80,000 pages.

http://nersp.osg.ufl.edu/~acadian/polan ... eceipt.pdf
Be greedy and fearful. All the time.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 2:47 pm

Thanks everyone! I will just ask the employer to cancel the bonus this year all together.

delamer
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Re: Postponing the bonus to next year. Is it a good idea?

Post by delamer » Mon Oct 08, 2018 2:51 pm

celentano wrote:
Mon Oct 08, 2018 2:47 pm
Thanks everyone! I will just ask the employer to cancel the bonus this year all together.
You are going to ask your wife’s employer to cancel her bonus?

How does your wife feel about that?

ryman554
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Re: Postponing the bonus to next year. Is it a good idea?

Post by ryman554 » Mon Oct 08, 2018 3:02 pm

delamer wrote:
Mon Oct 08, 2018 2:51 pm
celentano wrote:
Mon Oct 08, 2018 2:47 pm
Thanks everyone! I will just ask the employer to cancel the bonus this year all together.
You are going to ask your wife’s employer to cancel her bonus?

How does your wife feel about that?
The OP will get hit with a 15k ACA subsidy penalty for 5k of extra income, if I remember the other thread correctly. If I were the OP, I would ask the employer to reduce the bonus by 6k instead of canceling outright.

OP wife seemed to be in the loop, however, no so sure about the bonus cancellation, given it may set a future trend... =)

Oh, and, yes, it should be the *wife* that asks for this, not the OP.

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8foot7
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Re: Postponing the bonus to next year. Is it a good idea?

Post by 8foot7 » Mon Oct 08, 2018 3:03 pm

delamer wrote:
Mon Oct 08, 2018 2:51 pm
celentano wrote:
Mon Oct 08, 2018 2:47 pm
Thanks everyone! I will just ask the employer to cancel the bonus this year all together.
You are going to ask your wife’s employer to cancel her bonus?

How does your wife feel about that?
I would think OP and wife have had a discussion about this, but feelings may not really matter objectively. There are some real stupid cliff points in the ACA when it comes to subsidies - see https://www.healthinsurance.org/obamaca ... idy-cliff/. I would assume that if the wife's bonus is less than what they'd lose in subsidy by accepting the bonus, the obvious solution would be to not receive the bonus, regardless of feelings.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 3:11 pm

Yes, the wife is on board. However she asked me to talk to her boss about this. Would there be a problem if I talked to the boss. I am the financial guy in the family. The bonus is about $5000 and the Subsidy is a about $20000. This year I will try everything not to give them that $20000, because I think the whole thing is a big mass. I will try even if I break-even at the end, just to win the battle. I just started another thread about the early withdrawal on CDs.

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Mlm
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Re: Postponing the bonus to next year. Is it a good idea?

Post by Mlm » Mon Oct 08, 2018 3:21 pm

celentano wrote:
Mon Oct 08, 2018 3:11 pm
However she asked me to talk to her boss about this. Would there be a problem if I talked to the boss.
If I were her boss, yes there would be a problem with you talking to me about her pay or any part of her employment. I would refuse to talk to you.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 3:24 pm

OK, I will have to convince her to talk to her boss herself. Thanks for the input.

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dm200
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Re: Postponing the bonus to next year. Is it a good idea?

Post by dm200 » Mon Oct 08, 2018 3:25 pm

Mlm wrote:
Mon Oct 08, 2018 3:21 pm
celentano wrote:
Mon Oct 08, 2018 3:11 pm
However she asked me to talk to her boss about this. Would there be a problem if I talked to the boss.
If I were her boss, yes there would be a problem with you talking to me about her pay or any part of her employment. I would refuse to talk to you.
Absolutely. She is the employee - relationship (financial) with her boss is none of your business to discuss with him.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Mon Oct 08, 2018 3:29 pm

8foot7 wrote:
Mon Oct 08, 2018 3:03 pm
delamer wrote:
Mon Oct 08, 2018 2:51 pm
celentano wrote:
Mon Oct 08, 2018 2:47 pm
Thanks everyone! I will just ask the employer to cancel the bonus this year all together.
You are going to ask your wife’s employer to cancel her bonus?

How does your wife feel about that?
I would think OP and wife have had a discussion about this, but feelings may not really matter objectively. There are some real stupid cliff points in the ACA when it comes to subsidies - see https://www.healthinsurance.org/obamaca ... idy-cliff/. I would assume that if the wife's bonus is less than what they'd lose in subsidy by accepting the bonus, the obvious solution would be to not receive the bonus, regardless of feelings.
I read that article, thanks. However, it is not 'earning extra $100 will cost $19000+', only $1 extra will do the same big damage! Funny, isn't?

JGoneRiding
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Re: Postponing the bonus to next year. Is it a good idea?

Post by JGoneRiding » Mon Oct 08, 2018 11:05 pm

My employer (small) accidentally gave my year end bonus in Jan one year. It messed me up a bunch. But I bet if asked to intentionally do it again they would

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Watty
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Re: Postponing the bonus to next year. Is it a good idea?

Post by Watty » Mon Oct 08, 2018 11:35 pm

It would not work in many jobs but taking a leave of absence without pay might keep you below the income limits. Even if your wife cannot take the time off you might be able to, or you both might be able to take two extra weeks off.

Don't forget that if you have anything you can take a capital loss on that might allow you to reduce up to $3,000 of ordinary income or more capital gains.

ryman554
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Re: Postponing the bonus to next year. Is it a good idea?

Post by ryman554 » Tue Oct 09, 2018 1:06 am

Watty wrote:
Mon Oct 08, 2018 11:35 pm
It would not work in many jobs but taking a leave of absence without pay might keep you below the income limits. Even if your wife cannot take the time off you might be able to, or you both might be able to take two extra weeks off.

Don't forget that if you have anything you can take a capital loss on that might allow you to reduce up to $3,000 of ordinary income or more capital gains.
Like that international fund(s) I keep plowing money into.....

OP likes to be vague, however. Too bad, there is a lot of wisdom here.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Tue Oct 09, 2018 7:57 am

My intention is not to be vague. I am relatively new to this great forum. Unfortunately, I have a very complicated financial picture. I am taking advantage of ALL possible adjustments to MAGI (lines 25, 27,28,29,32,34 and 3000 loss in 13). I can guarantee that. Only open questions are what to do about the bonus situation and early withdrawal penalty option (I have a separate post for this).

SRenaeP
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Re: Postponing the bonus to next year. Is it a good idea?

Post by SRenaeP » Tue Oct 09, 2018 8:31 am

dm200 wrote:
Mon Oct 08, 2018 1:00 pm
Do not know the answer - BUT there may or might be some IRS (or other applicable) rules requiring taxable income be reported in the period/year when the work is done.
This certainly isn't the case. We don't all get paid Dec 31 to account for the work done that day. For the vast majority of people, your first paycheck in January will include time worked in December. You report income when it is received.

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dm200
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Re: Postponing the bonus to next year. Is it a good idea?

Post by dm200 » Tue Oct 09, 2018 10:06 am

SRenaeP wrote:
Tue Oct 09, 2018 8:31 am
dm200 wrote:
Mon Oct 08, 2018 1:00 pm
Do not know the answer - BUT there may or might be some IRS (or other applicable) rules requiring taxable income be reported in the period/year when the work is done.
This certainly isn't the case. We don't all get paid Dec 31 to account for the work done that day. For the vast majority of people, your first paycheck in January will include time worked in December. You report income when it is received.
Yes, I agree - for "regular" pay cycles and lag. I believe, though, there are limits on this.

celentano
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Re: Postponing the bonus to next year. Is it a good idea?

Post by celentano » Tue Oct 09, 2018 1:15 pm

It is a miracle! I don't have to postpone the bonus and I don't have to withdraw early my CD to incur penalty. I discovered that I can deduct $20,000 in line 29 (Self Employed Health Insurance Deduction). I didn't realize can deduct the whole thing, because it was not very obvious in the tax software (you have to manually tie the insurance to business to get this deduction). This move will reduce the AGI and MAGI by $20,000. I will qualify for ACA Premium Tax Credits and pay nothing. This is a great benefit of having the business.

marcopolo
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Re: Postponing the bonus to next year. Is it a good idea?

Post by marcopolo » Tue Oct 09, 2018 5:13 pm

celentano wrote:
Tue Oct 09, 2018 1:15 pm
It is a miracle! I don't have to postpone the bonus and I don't have to withdraw early my CD to incur penalty. I discovered that I can deduct $20,000 in line 29 (Self Employed Health Insurance Deduction). I didn't realize can deduct the whole thing, because it was not very obvious in the tax software (you have to manually tie the insurance to business to get this deduction). This move will reduce the AGI and MAGI by $20,000. I will qualify for ACA Premium Tax Credits and pay nothing. This is a great benefit of having the business.
You may be aware of this already, but just in case, and for others reading this. Be careful about the SE Health Insurance deduction and the ACA PTC. There is a bit of a circular (iterative) calculation that needs to be done to determine how much of you premiums are actually deductible, it will quite likely not be the entire premium amount.

Here is the IRS instructions on how to calculate the appropriate deduction amount:
https://taxmap.irs.gov/taxmap/pubs/p974-010.htm
Once in a while you get shown the light, in the strangest of places if you look at it right.

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