Can you teach me how this tax avoidance works? It seems that I am missing out. Can you also specify the jurisdiction where this works?
> mostly part of their contract
I can think of many people whose bonuses are 3x or more their salary and who do not have a guaranteed minimum bonus or even a strict formula based bonus.
This only affects the withholding of bonuses (the amount the IRS has you pre-pay as an estimate of taxes.) It does not affect the actual income tax on bonuses.
(It's mostly a disadvantage. I get about 60-70% of my income in bonus and stock which is treated the same; it just means that, if I don't plan ahead for it, I end up with a surprise tax bill on April 15th. I do plan ahead, but the whole process is obnoxious.)
There are plenty of games you can play with withholdings. EX: As long as you witholdings are enough to pay last years taxes or 90% of this years you are good.
Or if your bonus is in January you can have a higher witholdings from salary and the default 25% from the bonus. Just balance it by the end of the year.
But that's just simple stuff, there are also other benefits to the company.
Can you teach me how this tax avoidance works? It seems that I am missing out. Can you also specify the jurisdiction where this works?
> mostly part of their contract
I can think of many people whose bonuses are 3x or more their salary and who do not have a guaranteed minimum bonus or even a strict formula based bonus.