Bonus Clawback -- "claim of right doctrine" Forum

[Anonymous User]

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

[GoldenPuppy]

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.

[GoldenPuppy]

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]

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.