USA Can I defer an employee's performance bonus until next year?


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I'm searching for guidance regarding salary bonus deferral. I have an employee who is requesting that we defer their performance bonus payment until 1/1/2020 to lower their taxable base? My company doesn't have a history of deferring bonus payments, so they can be realized in more favorable tax years. From a legal standpoint I wanted to know if this was a compliant transaction. Also, does anyone know the guidance for this topic?
 

bklynboy

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Deferred compensation is quite common in major companies - mine has such a program. It allows me to move my bonus to an interest bearing account and I am not taxed on it until withdrawn. These are either qualified or non qualified (though more rules around how this must be structured) - as an employer you want qualified or you cannot deduct the deferred payment on your current returns. Check this link as a starter but if going this route you need a legal rep who knows these inside and out
 
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bklynboy

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Accounting wise its very straightforward BTW - you record as a normal wage payment to the employee but instead of offsetting AP or cash you set up a deferred comp liability that is released when paid. Tax deduction however depends on whether it meets the rules as a qualified plan under IRS.
 
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The fact that the employee was given the option to take it now or defer makes the entire bonus taxable NOW under what is called the “constructive receipt” rule. Definitely not a qualified deferred comp plan.
 

kirby

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Playing "let's make a deal" with comp sets a very bad precedent. So what if another person wants same deal but paid monthly over the next year as that will really minimize tax. And so on. And having made an exception for one do you now need to go to everyone else and offer the same deal to be fair? Just follow a set policy and be done with it.
 
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bklynboy

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The fact that the employee was given the option to take it now or defer makes the entire bonus taxable NOW under what is called the “constructive receipt” rule. Definitely not a qualified deferred comp plan.
There was no option but employee requested a deferral that is not available under the current company's policy.
 

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