3 ms·

Unfortunately a lot of people don't understand the basic math you described. I know several people who think they lose money after getting bonuses and such.

gamblor956 12y ago
It's not a matter of losing money; it's a matter of losing certain tax benefits that exceed the value of the bonus. It's a very real issue for people who straddle various thresholds for credits, deductions, and other benefits. For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes.
- dragonwriter 12y ago
  > For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes. The student loan interest deduction (and this is true of most -- AFAIK, actually all -- deductions with an income cap) doesn't have a sharp cutoff, it has a phaseout -- you get the full deduction up to $60,000, and it is reduced continuously with income down to zero at $75,000. At $74,000, the maximum student loan interest deduction is a $167 deduction (which, at that income, is worth $42 in reduced tax liability.) Even with a $1,000 bonus that takes you just to the cutoff, its not possible for the loss of the deduction to be "worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes". [1] [1] http://www.irs.gov/publications/p970/ch04.html#en_US_2013_publink1000178283 http://www.irs.gov/publications/p970/ch04.html#en_US_2013_pu...
  - nimblegorilla 12y ago
    Thank you for debunking the previous comment. Just goes to show how many people don't understand the way deductions and taxes work.
    - zo1 12y ago
      It's unfortunate that the system for paying taxes has become so complicated. It's no wonder that people complain about rich people exploiting tax-law. Whereas they simply have the inclination/money to hire accountants that do the books properly, and give them the advice they need to keep their affairs in perfect-tax working order.

gamblor956 12y ago

It's not a matter of losing money; it's a matter of losing certain tax benefits that exceed the value of the bonus. It's a very real issue for people who straddle various thresholds for credits, deductions, and other benefits. For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes.

dragonwriter 12y ago
> For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes. The student loan interest deduction (and this is true of most -- AFAIK, actually all -- deductions with an income cap) doesn't have a sharp cutoff, it has a phaseout -- you get the full deduction up to $60,000, and it is reduced continuously with income down to zero at $75,000. At $74,000, the maximum student loan interest deduction is a $167 deduction (which, at that income, is worth $42 in reduced tax liability.) Even with a $1,000 bonus that takes you just to the cutoff, its not possible for the loss of the deduction to be "worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes". [1] [1] http://www.irs.gov/publications/p970/ch04.html#en_US_2013_publink1000178283 http://www.irs.gov/publications/p970/ch04.html#en_US_2013_pu...
- nimblegorilla 12y ago
  Thank you for debunking the previous comment. Just goes to show how many people don't understand the way deductions and taxes work.
  - zo1 12y ago
    It's unfortunate that the system for paying taxes has become so complicated. It's no wonder that people complain about rich people exploiting tax-law. Whereas they simply have the inclination/money to hire accountants that do the books properly, and give them the advice they need to keep their affairs in perfect-tax working order.