It's a completely different situation than bonuses on top of a salary that already covers living expenses.
Can you teach me how this tax avoidance works? It seems that I am missing out. Can you also specify the jurisdiction where this works?
> mostly part of their contract
I can think of many people whose bonuses are 3x or more their salary and who do not have a guaranteed minimum bonus or even a strict formula based bonus.
1. The Percentage Method
The IRS specifies a flat “supplemental rate” of 25%, meaning that any supplemental wages (including bonuses) should be taxed in that amount.
This works for bonuses up to 1 million.
> I can think of many people
Yes, there are plenty of idiots even in finance.
(It's mostly a disadvantage. I get about 60-70% of my income in bonus and stock which is treated the same; it just means that, if I don't plan ahead for it, I end up with a surprise tax bill on April 15th. I do plan ahead, but the whole process is obnoxious.)
Or if your bonus is in January you can have a higher witholdings from salary and the default 25% from the bonus. Just balance it by the end of the year.
But that's just simple stuff, there are also other benefits to the company.
But it's absolutely not correct that paying people with bonuses lowers their effective tax rate.
Bonus makes up a significant portion of my regular income. I'm sure that's true for many other HN readers.
> It's a completely different situation than bonuses on top of a salary that already covers living expense.
In many cases, salary does not cover living expenses. In some instances bonuses can be 10x annual salary or more. Even if bonus is only 3x annual salary, you wouldn't say that salary covers living expenses as few people live on only 25% of their income.
Also, if you're still working there and looking for fresh CS grad (Scala and Linux admin experience), my email is in my profile ;)
New York State's budget situation is good or bad based on how good or bad bonuses are -- we're talking billions of dollars.
Even in the very unlikely event that you have an airtight contract, there are instances where the employer simply will not pay you. Legal action might be the only recourse in this situation. Sometimes you are required to go through arbitration and sometimes you have to sue.