Hi, I just accepted an offer with the standard bonus $ and 1 year stip that says you need "full year or full clawback."
But I also have a pending application with a public interest group that I will accept if I get offered (already done final round of interviews -- they said it would take several months to get a decision; HR very slow).
So, there's a possibility i might get offered the PI job a month or so after accepting the BL offer, and I am prepared to deal with the financial consequences, but want to be financially prepared.
1. I think it makes sense to ask firm to either 1. delay bonus payout until January 2020 or 2. pay me in installments, citing "tax reasons." Agree?
2. can someone explain the "claim of right doctrine" in plain English? I read it on the IRS and I think I understand -- option 1 is to just itemize, but that still screw you given if you didn't itemize you would have a 12k standard deduction which is free money (does that make sense -- or do i need to communicate that differently); option 2 … makes no sense to me.
https://www.irs.gov/pub/irs-drop/rr-04-29.pdf
MODS: I think if we get a concrete answer on tax implications it could be a useful sticky -- just my .02
Bonus Clawback -- "claim of right doctrine" Forum
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Anonymous posting is only appropriate when you are sharing sensitive information about clerkship applications and clerkship hiring. You may anonymously respond on topic to these threads. Unacceptable uses include: harassing another user, joking around, testing the feature, or other things that are more appropriate in the lounge.
Failure to follow these rules will get you outed, warned, or banned."
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- GoldenPuppy
- Posts: 38
- Joined: Sun May 23, 2010 7:58 pm
Re: Bonus Clawback -- "claim of right doctrine"
I'm very impressed that claim of right is on your radar screen. Similarly impressed with your proposed solution. It's the only reason I'm posting lol.
2.
2019 income w/ bonus
47,500 biglaw salary
50,000 biglaw bonus
97,500 income, tax = 14,768
2019 income w/o bonus
47,500 biglaw salary
47,500 income, tax = 6,395
Tax difference = 14,768 - 6,395 = 8,373
Option #1
2020 income minus claim of right credit
90,000 PI salary
90,000 income, tax = 13,061
tax after claim of right credit = 13,061 - 8,373 = 4,688
Option #2
2020 income minus claim of right deduction
90,000 PI salary
(50,000) biglaw bonus
40,000 income, tax after claim of right deduction = 4,745
Assuming you align with this scenario, there's not much difference between the two methods.
2.
2019 income w/ bonus
47,500 biglaw salary
50,000 biglaw bonus
97,500 income, tax = 14,768
2019 income w/o bonus
47,500 biglaw salary
47,500 income, tax = 6,395
Tax difference = 14,768 - 6,395 = 8,373
Option #1
2020 income minus claim of right credit
90,000 PI salary
90,000 income, tax = 13,061
tax after claim of right credit = 13,061 - 8,373 = 4,688
Option #2
2020 income minus claim of right deduction
90,000 PI salary
(50,000) biglaw bonus
40,000 income, tax after claim of right deduction = 4,745
Assuming you align with this scenario, there's not much difference between the two methods.
- GoldenPuppy
- Posts: 38
- Joined: Sun May 23, 2010 7:58 pm
Re: Bonus Clawback -- "claim of right doctrine"
To figure out the credit, you calculate your taxes with and without reporting the bonus. The difference in tax becomes a credit in the year you repay the bonus.
- GoldenPuppy
- Posts: 38
- Joined: Sun May 23, 2010 7:58 pm
Re: Bonus Clawback -- "claim of right doctrine"
Forgot to add that on top of everything else, if you accept the bonus, 7.65% of that would go up in smoke because of Social Security and Medicare taxes that you can't get back. In your case, that's probably around $3,825.
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