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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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A firm I want to join has agreed to pay me a signing bonus.

Resolved Question:

A firm I want to join has agreed to pay me a signing bonus. They want to deposit the bonus in an shell account and pay me 50% of it upfront as a loan. I would have to sign a 4 year contract and at the end of the 4th year they would pay my taxes on the full 100% of the bonus and give me the balance that was in the account as the last part of my bonus. This is not what I have known as a forgivable loan althiugh it seems similar. Is this anything that is common and is it right that they do not pay my taxes until the 4th year on the money?
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to Just Answer!
The bonus is included into taxable income when you have rights for these funds.
If the money are not vested - means you have no rights to use these money - that is so-called defered compensation - and should not be included into your income.

The company may provide you a loan for which you are required to pay the interest. If there is an intention to forgive "the loan" - that is not a loan - but a compensation for services which generally should be treated as wages.
Let me know if you need any clarification.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22643
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 2 years ago.
So if they agree to pay me a bonus of $100,000.00 and then place the bonus into a shell account and give me $50,000.00 as a loan from the original $100,000.00 is the $50,000.00 loan they gave me taxable or just a loan that the taxes would be paid on at the end of my 4 yr contract? The $50,000.00 left in the account they told me would be used to pay the tax on the full bonus at the end of my 4 year contract. I would receive the balance minus the tax payments at that time. Is this a fair and legal procedure?
Expert:  Lev replied 2 years ago.
If you are paid a bonus of $100,000 - that amount is treated as your wages and included into your taxable income. It would be up to you how to treat these money.
You may agree to put it into a shell account any other account, you may give a loan to the company, etc - as long as these are your money - that is up to you how to use them.

If your employer doesn't pay you a bonus of $100,000 in this year, but pays $50,000 instead - that amount is treated as your wages.
If your employer puts their money into a shell account and promise to pay you that amount in four years - that is up to them. It will be included into your income only when you will actually be paid or will have rights to use these funds.

If your employer pays you $50,000 and calls it a loan - but neither you nor your employer expect these money to be paid back - that is not a loan, but a compensation for services - and should be included into your taxable wages in the year it is paid.

That is up to you to agree with this clause in the contract. There is nothing wrong or illegal - as long as you both agree on terms. Seems as your employer does not want you to leave and attaching a bonus paid in four years - so you would not look around for better offer.
Customer: replied 2 years ago.
If I agree and the employer agrees to terms where the employer puts the money in a shell account for me and then pays me a loan of 50% of the money and then after the 4 yr contract is up gives me the rest of the money and then forgives my loan and pays the taxes on the total amount from the account why would I have to pay taxes the 1st year when I received the 50% of the money?
Expert:  Lev replied 2 years ago.
If your employer pays you $50,000 and calls it a loan - but neither you nor your employer expect these money to be paid back - that is not a loan, but a compensation for services - and should be included into your taxable wages in the year it is paid.
I do not know what your employer will do and how that amount will be treated - but that how it should be treated according to IRS regulations.

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