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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12694
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Just a quick question - not sure if it is your area of

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Hi Pearl Just a quick question - not sure if it is your area of expertise
JA: The expert will know how to help. Please tell me more, so we can help you best.
Customer: Can you exaplain this?
JA: Is there anything else important you think the expert should know?
Customer: "From the Commencement Date through October 31, 2018, your base compensation will be at the annual rate of $200,000.00 (net of applicable payroll taxes and withholdings and prorated for any period less than a month) payable in equal monthly installments, on the last business day of the month"
Customer: replied 2 months ago.
I live in NY state, Westchester county. Would also like to know what would be the monthly payout based on the quote I sent you

Hi. My name is Lane

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Perhaps an example would help:

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First (may be stating the obvious here) it's important to note the terminology, "annual rate." This means that one would have to apply a unit time of, say, months, to understand the amount.

So of the "commencement date" is 6/30/2017, then we (knowing that we are dealing with an annual rate) need to divide by 2 to account for the fact that there are only 6 more months left in the calendar year, and then divide by 6 to get to a monthly amount.

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So, to simplify lets say that the commencement day is 01/01/2017 and that the ending date is 12/31/2017 This means that we have 200,000 / 12 = $16666.66 per month.

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Now, becasue taxes are based on calendar year, a beginning date of say, today, means that you'd need to blend this with household income for the first 7 months of the year to see what the tax effect would be.

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But assuming that you earned at the same rate for the year, you'd be looking at the following ( bear with me while I drop the numbers into a tax model for federal, state, and payroll taxes (be right back).

See the attached

As you can see from the attached, if you choose withholding commensurate with that income being your annual income your after tax income is 130,849.80 or 10904.08 per month,

Customer: replied 2 months ago.
Hi Lane
Customer: replied 2 months ago.
Thanks for the answer. I was actually interested in what "net of payroll taxes and withholdings" means. Is 200k after tax, or before tax and I will get the amount after tax?

Well, they DID say 200,000 "(NET of payroll taxes and withholdings..."

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So that implies that they would always be sure that you get that full 16666 per month.

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I'd ask for clarification/guarantee of that, however. Quoting things that way is HIGHLY unusual ... mostly becasue what you have withheld for state and local taxes is between you and the taxing authorities (If you don't have enough withheld, you'll owe more at tax time - and get that underpayment penalty (IRS' not so subtle reminder that we have a pay-as-you-go tax system) as well.

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And the withholding is something that you direct the employer to do (through the w-4 form and he state equivalent) So quoting you an amount NET of withholding would be quire risky for them.

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I have to wonder if they didn't MEAN to say 200,000 that would be netted BY (reduced by) payroll withholding.

Customer: replied 2 months ago.
My ask to them was a 450k package, ultimately with a guaranteed 300k cash-flow. Cash-flow should mean net payroll, that's why I think their unusual language. Does it makes sense in this scenario?

Cash flow means net OF payroll ... but again, YOU choose how much the withholding is.

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Only Social Security & Medicare is a specified amount ... Income taxes, the much bigger piece, are driven by you (and that's reconciled at tax time by your either paying -up if you under-withheld or getting a refund if you over-withheld.)

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But yes, sounds like they're trying to keep things in terms of a net (reduced) number.

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