[vostok]

> That's just for tax avoidance, those 'bonuses'

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.

[Retric]

http://blog.turbotax.intuit.com/income-and-investments/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.

[ahh]

This only affects the withholding of bonuses (the amount the IRS has you pre-pay as an estimate of taxes.) It does not affect the actual income tax on bonuses.

(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.)

[Retric]

I find large interest free loans useful.

[ahh]

I don't hate this (and it's why I don't pay quarterlies--also, I tend to generate enough deductions to be okay.)

But it's absolutely not correct that paying people with bonuses lowers their effective tax rate.

[vostok]

You will have to pay penalties if you underpaid over the course of the year. This makes it not interest free.

[Retric]

There are plenty of games you can play with withholdings. EX: As long as you witholdings are enough to pay last years taxes or 90% of this years you are good.

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.