Annual raise or one time bonus?

Question

Which is better? A one time bonus or a raise that would equal the same amount of the bonus annually? I'd imagine there's a tax benefit to one or the other, but I'm not familiar with the process to know.

Answer 1

These other guys are missing the obvious:

If it's the same amount, the raise is MUCH MUCH better over the long term. That's because raises are additive and bonuses aren't.

IF YOU TAKE THE BONUS EVERY YEAR:
If you are making $50,000 this year and get a $5000 bonus and no raise, then at the start of 2008 you are still making $50000. If you get a $5000 bonus and the end of 2008 and no raise, and then at the start of 2009 you are still making $50000. And etc. $55K total per year to infinity.

IF YOU TAKE THE RAISE EVERY YEAR:
If you are making $50000 this year and get a $5000 raise (and no bonus), then at the start of 2008 you are making $55000. If you get a $5000 raise again then at the start of 2009 you are making $60000. And etc. In 10 years you will be making $100,000.

The tax implications pale to nothing beside this fact.

Answer 2

One time bonus is just that ONE TIME. no guatantee you will get another next year or the year after. A raise equal to the bonus gives you the amount of the bonus in the next 52 weeks & the next 52 weeks, etc, etc..
So If your bomus is $1000 by taking the raise and work there for 10 years, you get $10,000 .
A no brainer...

Answer 3

The bonus MAY be subject to higher WITHHOLDING, but the actual TAX is exactly the same for either. The benefit of a raise is you KEEP getting the money after the first year. A one time bonus may be just that, a ONE TIME bonus.

Answer 4

It depends on whether the bonus puts you into a higher tax bracket.

If it doesn't then you're better off taking the bonus. You don't know for sure you'll continue employment, and you get the benefit of the money sooner, so can invest/save it and have it work for you.

But see if they'll wait until after Jan 1st to issue the bonus. That way you'll get use of the money for an extra year before you're taxed on it at all.

Good luck!

Answer 5

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Answer 6

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Answer 7

Bonus money is subject to a higher percentage of tax than a yearly raise.