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View Full Version : Sign on Bonus Option - Taxes Withheld or Loan?


phillydoc
Nov 20, 2007, 02:45 PM
Hello,

I have recently accepted a position with a $20,000 sign-on bonus. The employer has given me two choices in how to receive the bonus:

1) upfront (all-at-once) with taxes withheld at the following rate:

- 28% federal withholding
- 7.65% FICA withholding
- ~5% state withholding

2) taken as a loan. The loan will be forgiven over 12 months once I begin work at which time FICA, federal, and state taxes will be taken out of my monthly paychecks (over the 12 month period).

My question is basically which option makes more sense financially? Also, I don't really NEED the bonus immediately, so the immediate difference between the two options is negligible for me.

I want to know if one option will be taxed less. It seems that if I take it up front, I am being taxed at a very high rate; even though my salary next year will be more than 2 times what I made in 2007, my average tax rate should be lower that 40 %, right?

Thanks in advance for your help. :)

AtlantaTaxExpert
Nov 21, 2007, 08:12 AM
The taxes will be the same in the end.

The WITHHOLDING will probably be less under Option #2, at least at the federal level.