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It's taken out upfront. Tax rates are higher for incentive compensation, etc.
close to 50%.
Bonuses are paid at year-end since its aligned with performance. If its included in the salary, what financial incentive do the MD's (and lower) have in generating fees? Exactly.
Your tax rate on bonus compensation, which is what a signing bonus is considered is different by roughly 10%. You get shoved into the highest bracket assuming you're an analyst.
Now this depends state by state, so if you are in NYC or CA you're going to get roughly 60% of that $10K. Good news is, that all comes back when you file taxes so its not that big of a deal. So that's another reason not to care if it comes in the form of bonus versus salary.
The funny thing about all these changes, is people in general are actually more motivated by a large lump sum check than they are by a high base salary. So all these crazy changes are actually reducing incentive. Big joke when you think about it.
Anyway hope that answers all the questions.
Also worth noting that you are NOT required to let the government withhold all of that money from your paychecks as long as you know that you will be receiving the money back when you file your income taxes at the end of the year.
Every IB summer intern should be claiming 8+ allowances when filling out their W-4 prior to starting their internship. As long as you do this, the bank won't withhold any federal income taxes from your paychecks, and you'll receive ~22% more money over the summer, as opposed to waiting until tax season to get a lump-sum check from the government.
Yeah just to add, incentive comp is not taxed at a higher rate. Tax withholding is done assuming that each check is your bi-weekly comp and you tax bracket is imputed as such. So, when it turns out you made less than $520,000 for the year (10k * 52 weeks) you will receive some of that marginal withholding back as a refund.
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