Sign-on bonuses

[austin3515]

Plan excludes taxable fringe benefits from compensation. What say you regarding whether or not a sign-on bonus might be considered a taxable fringe? Perhaps along the same lines as moving expenses?

[jpod]

I had a similar issue recently. Nobody knows what the heck "taxable fringe benefits" means, and I haven't seen a plan document that bothered to expand upon it. My advice was it can be whatever the Plan Administrator deems it to include, as long as that interpretation is reasonable and consistent with prior interpretations (in other words, there's a lot of wiggle room provided you are consistent and can rationally distinguish a type of payment you wish to exclude from other types which you didn't exclude in the past).

[austin3515]

OK, I definitely see the point. But would also recommend that for something like that, which in my opinion is at best gray, to say something like "sign-on bonuses are excluded" or "sign-on bonuses shall be considered taxable fringe benefits" or something like that?

[GMK]

This guide:

https://www.irs.gov/pub/irs-pdf/p15b.pdf

doesn't mention "bonus" or "sign"

so you probably need to use your imagination to fit a signing bonus in as an excluded fringe benefit. It looks like pay to me, but I'm no authority on it.

[austin3515]

We had a very very brilliant attorney say it could be considered a taxable fringe (edit: I'm not being sarcastic here by the way). Which certainly reminds me of the old adage about attorneys - "what does the Plan Documnent say? That depends. What do you want it to say?"

[K2retire]

Thanks for that link!

[david rigby]

It's cash. IMHO, the term "fringe benefit" was originally created to cover things that are not cash.

[austin3515]

Well, I don't think that is litmus test. Moving expenses are cash, opt out of health insurance payments are cash, STD disability benefits, and on and on.

[ESOP Guy]

Why isn't this just compensation? Despite the name you really aren't getting paid to sign on but to show up and work the first day. So why isn't this just compensation for worked performed?

[jpod]

Of course it is compensation. The problem, however, is that the safe harbor in 1.414(s)-1©(3) allows you to exclude "fringe benefits (cash and noncash)," without telling us what a cash fringe benefit is!

[ESOP Guy]

Let me be more precise. What isn't it wages for a hour(s) worked? Once again you actually have to show up and work your first day to collect a signing bonus. I have never seen a signing bonus that is paid if the guy shows up and says, "I am here were do I sign for my bonus-- oh thanks for letting me sign I quit mail me my check!" You have to actually perform some labor in order to get that bonus.

In all the years I have worked in this field this is the first time I think I have had anyone try and make the case this isn't just simple wages. I have never seen someone try and make the case this group is trying to make that you can exclude it as a fringe benefit.

To me it is W-2 wages if your plan uses any of the safe harbor definitions of compensation it has to be included.

[hr for me]

Have to agree I haven't seen it excluded before, except possibly by the fact that the employee isn't eligible for the plan until some time after hire or possibly isn't eligible for employer match due to the eligibility reasons. So it was covered by eligibility more than the definition of fringe benefits or compensation.

[MQS0413]

@austin3515 could you share who the attorney was?

[austin3515]

You know that post was from 9 years ago?  That's a no, LOL.