Signing Bonuses

Question

When do companies usually give out signing bonuses to second year students and more importantly in what year are they taxed? If I were to sign with a company this fall would the bonus get taxed in 2009 or 2010? I'm planning to do a rollover of my IRA to a Roth while I have low income, but only makes sense if I stay in a lower tax bracket and a signing bonus could make a BIG impact on this, thanks.

refurb · Answer

I'm sure there may be the occasional exception, but most companies explicitly state that you will receive your signing bonus "within X weeks" after your start date.

In terms of taxation, it's taxed in the year it shows up on your pay stub.

I wouldn't worry about a company giving you money before you've actually started. :wink:

RF

riverripper · Answer

dates of getting bonuses varies pretty greatly. I have heard of people getting all on signing, 50% at signing and 50% with first pay check, all in your first check, and even within 60 days of start. Some companies dont have signons they have "relocation" bonuses which come after you move and sometimes when you get your bonus depends if you interned there or not. I know someone who signed with their internship employer and got it immediately but people who recruited during the fall got them after joining.

refurb · Answer

So when exactly did they get the money? Before they started their second year?

RF

cbreeze · Answer

Mine was spread out over 6 months AFTER I started the job.

Relocation bonus was given in a lump sum immediately within a week.

There was no money to tie you over between graduation and starting date but I am not working at the same company where I interned. I got my offer 7 months before graduation.

refurb · Answer

Thanks cbreeze!

I'm really curious how the bonus-before-you-start works. I've always thought companies were reluctant to give bonuses before starting because of the hassle of getting the money back if the person pulls out.

RF

riverripper · Answer

Basically you sign a contract, if you bail I am sure you would royally screw yourself.

refurb · Answer

Either way, it's nice to know that it's an option. A signing bonus after your internship would sure help in reducing the loans you take out in your 2nd year.

RF

riverripper · Answer

Either way, it's nice to know that it's an option. A signing bonus after your internship would sure help in reducing the loans you take out in your 2nd year. 
I dont know how much I will take this year, I have the option to max out if I want but I saved enough this summer to not need anything beyond my share of tuition after scholarships. My employer doesnt give out money until you show up, and I dont think you would be successful in negotiating that point. Then again maybe I will take out a bunch and just live life up this year...mortgage your future earnings for some amazing fun now.

refurb · Answer

Considering they give you $20K or so for living expenses, you could REALLY live it up.

RF

nink · Answer

I received a signing bonus before. I remember that about half of the bonus amount went to the IRS.....

refurb · Answer

Yeah, i think the IRS treats it as a gift and taxes it at the highest rate (you'll get some back depending on your final income for the year).

Otherwise, the gov't treats it as actual income for the year. In other words, if you $4000 biweekly paycheck puts you in the 20% bracket, the $20K signing bonus will automatically be taxed in the highest bracket.

The cool thing is, if you can pull a signing bonus after your internship, you'll likely pay a LOT less tax on it, since your only income for the year is your internship (~$24K over 3 months) and the bonus!

RF

Signing Bonuses

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