California "stay or pay" rule and taxation of delayed signing bonuses

[Carol V. Calhoun]

The California "stay or pay" rule effective January 1, 2026 will in general prohibit clawbacks when an employee leaves employment.  However, under limited circumstances, the rule does not apply to a signing bonus.  Among the conditions for it not applying is that the employee must have the option to delay the signing bonus until the end of the retention period.

Has anyone thought about the taxation of the signing bonus if it is deferred?  Presumably, if it is considered "made available," it would be taxed immediately upon hire, even if the employee elected to defer it until the end of the retention period.  And a signing bonus that is actually paid is taxed upon payment, even if it has to be returned if the employee doesn't stay until the end of the retention period, so presumably the same rule would apply to a bonus that is made available.

In the 409A context, presumably in order to avoid this issue, a deferral is recognized only if it is made within the first 30 days, and only if it relates to compensation earned after the election.  But a signing bonus is earned upon signing, so that wouldn't work here.

Any thoughts?