Signing bonus taxes???

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newdoc
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Signing bonus taxes???

Post by newdoc » Sat Mar 09, 2019 7:16 pm

Hi,

So, I'll be taking a job in a different state later this year. I'll be signing the contract soon and will be receiving a signing bonus. I obviously am expecting to pay federal income tax on this but what about state tax? Do you pay state tax on a signing bonus? If so, which state, the one I currently reside in or the one where I'll be taking the job? What if I negotiate the signing bonus into a starting bonus to put it off until I reside in the new state with a lower tax rate? Also, do I pay FICA taxes on a signing bonus?

Thanks

pasadena
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Re: Signing bonus taxes???

Post by pasadena » Sat Mar 09, 2019 7:22 pm

I paid taxes on my relocation bonus in the state where I was residing at the time that it was paid. That is, I didn't because I moved to a no-income-tax state 8-) - Since I was moving from a high-income-tax state, I worked with my new employer to make sure that the lump sum would be paid after I had fully changed residence (from a tax perspective).

And yes, you pay FICA taxes. It is withheld at the supplemental income rate, but it's considered normal income on your return.

Also, be careful if you have a repayment period (i.e. if you leave the company before X years, you have to repay the bonus). They will most certainly have you repay the full bonus, including withheld taxes.

deikel
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Re: Signing bonus taxes???

Post by deikel » Sat Mar 09, 2019 7:31 pm

I think it does not matter: You will have lived in both states for 2019, so you pay taxes in both and have to file a state return for both.

If you only move later this year a better way would be to receive the payment in 2020 (say as a 6 month retention payment)

What type this payment is does not matter (bonus pay, signing pay, moving expense pay) - its all paid out as income and will be fully taxed (in fact they might offer to pay 401k from it, in which case you might be able to use it to get a match)
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grabiner
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Re: Signing bonus taxes???

Post by grabiner » Sun Mar 10, 2019 11:15 am

deikel wrote:
Sat Mar 09, 2019 7:31 pm
I think it does not matter: You will have lived in both states for 2019, so you pay taxes in both and have to file a state return for both.
But you shouldn't have a double taxation problem. You will file part-year returns for both states, which list how much you earned in both states. If you receive your bonus after changing residency, it is income earned in your new state, and is taxed only by your new state.

If you receive the bonus before moving, it will be taxed by both states; your old state taxes it because you were a resident when you received it, and your new state taxes it because it has a source in the state. In that case, you can claim a credit for the income taxed by both states; in most states, you would get the credit on the resident state tax for the non-resident income.
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newdoc
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Re: Signing bonus taxes???

Post by newdoc » Mon Mar 11, 2019 6:11 pm

So, it seems the best thing for me to do is to delay receiving the signing/starting bonus until I move to the new state. Correct?

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grabiner
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Re: Signing bonus taxes???

Post by grabiner » Mon Mar 11, 2019 10:44 pm

newdoc wrote:
Mon Mar 11, 2019 6:11 pm
So, it seems the best thing for me to do is to delay receiving the signing/starting bonus until I move to the new state. Correct?
This is probably correct, although it may be a wash if your new state has a higher tax rate than your old state. (In that case, if you get the bonus from your new state and you have to pay taxes to both states, you will probably get the old-state tax back as a credit.)
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sunny_socal
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Re: Signing bonus taxes???

Post by sunny_socal » Tue Mar 12, 2019 6:43 am

grabiner wrote:
Mon Mar 11, 2019 10:44 pm
newdoc wrote:
Mon Mar 11, 2019 6:11 pm
So, it seems the best thing for me to do is to delay receiving the signing/starting bonus until I move to the new state. Correct?
This is probably correct, although it may be a wash if your new state has a higher tax rate than your old state. (In that case, if you get the bonus from your new state and you have to pay taxes to both states, you will probably get the old-state tax back as a credit.)
I don't think it makes a difference. You "worked" for the new company when you received it. At tax filing time you declare how much of your income was earned per state.

I went through the exact same scenario this year, didn't end up being double-taxed (however moving expenses are no longer deductible, that hurt.)

Regarding original question: Yes, you'll pay all the normal taxes on that income. State tax depends on where you moved.

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RickBoglehead
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Re: Signing bonus taxes???

Post by RickBoglehead » Tue Mar 12, 2019 6:57 am

Whether it's normal pay or a signing bonus, you'll owe all the same taxes (federal, state, FICA). What's different is the amount that is withheld, IF your employer follows the rules for lump sums. But regardless, you'll still owe the same taxes.

As to what state has claims over a signing bonus, you'll want to carefully read the rules for both states. Some states have you pro-rate your income based on the actual dates you live there. Some states look at the income you earned in that state, regardless of where you were a resident. Usually you would prepare a return in your new state, then get a credit on any income tax paid from your old state, which would cover a signing bonus paid for state 2 while you were a resident of state 1.

Say your signing bonus comes tomorrow, March 13th, but you don't start work in state 2 until April 1st.

https://turbotax.intuit.com/tax-tips/st ... /L79OKm3jI

To be safe, if your new state has a lower tax rate than your old state, you'd want to have the signing bonus paid AFTER you establish residency in the new state. Consult your tax professional.
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