(For anyone interested, here's a rehash of a comment I made a while back http://news.ycombinator.com/item?id=1097801 which suggests you be flexible on salary to gain a larger total compensation. If you haven't worked out these numbers in advance, this is how I think you should spend the extra time the OP's tip will give you)
Keep firmly in mind that your salary is only one term in the overall equation adding up your total compensation. Total compensation = sum(salary, daycare, commute costs, conferences, professional development, 401k matching, ...)
Consider, for example, lunch. Here in NYC, a company that buys you a $10 sandwich for lunch every day is giving you $3,330+ salary equivalent (Assuming you're in the 25% tax bracket) [1]
Take the time to sit down and do something along the following lines:
- list out benefits a company might offer
- group them into things you care about and things you don't (don't have kids -> don't need daycare)
- for the things you care about, think about how much each one would cost you to pay for yourself
- think about what minimum level of that benefit you would accept, happy, and ecstatic. (eg. Minimum: company pays for one local conference/year. Happy: one conference anywhere in US/yr. ecstatic: more than one conference anywhere in the world)
- for the ones you DON'T care about, think about how much it costs the company to pay for each
When it comes time to negotiate your compensation, always think in sets. Think (and talk) in terms of how moving any one piece requires movement on a different piece. Give up the things in the "don't care" set to gain at least as much value in the "want" set.
Eg. They want to give you less money, you can agree to that, if they give you X more vacation days.
Eg. They offer free daycare, you say that you appreciate that, but since you don't have kids you would rather have "work at home Fridays" and a slightly larger 401k match.
By considering the total you are much more likely to get a better overall package
So every $1 the company saves you (by buying your lunch or your monthly parking or whatever) is worth $333 in salary in the 25% tax bracket. (Assuming you don't change to a different tax bracket by the change to your cash salary)
That's one way to look at it, but keep in mind how many other benefits are based off your salary. Raises[1] are often some percentage of your base salary. 401k match? Percentage of your salary. Bonuses? Often a percentage of your salary. Life insurance, AD&D benefits, long- and short-term disability, which you hopefully will never need, but if you do, all pay out according to your base salary.
Keep all that in mind when you are doing the math. With a higher salary you can pay for day-care yourself (and still deduct it from your taxes) and bring a sandwich from home for lunch.
1. If a raise ever comes at all. Do not plan on it when you are negotiating your salary, even if they tell you everyone has gotten a 10% raise every year for the past 10 years.
You have to be really careful about that $10 dollar sandwich depending on how its used. If the company culture is that you all eat together everyday (and probably talk about work stuff) or you take your sandwich back to your desk, the employer has essentially gotten a free hour of work out of you and if you were contractor this might equate to a loss of -$100.
I checked awhile back and most software companies fail the convenience test. It is only allowed if the employee can't get food elsewhere (e.g. on an oil rig).
You can exclude the value of meals you furnish to an employee from the employee's wages if they meet the following tests.
They are furnished on your business premises.
They are furnished for your convenience.
This exclusion does not apply if you allow your employee to choose to receive additional pay instead of meals.
Whether you furnish meals for your convenience as an employer depends on all the facts and circumstances. You furnish the meals to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for your convenience is not sufficient.
You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met.
The meals are:
Furnished on the business premises of your employer, and
Meals an employer provides as a means of disguising additional compensation to an employee are not regarded as furnished for the convenience of the employer under section 119. The IRS considers a meal as furnished for the employer’s convenience only if the company provided it for a substantial noncompensatory business reason. An employer furnishes a meal for such a reason when providing it
So the employee is available for emergency calls during his or her meal period.
Because the employee must be restricted to a short meal period and could not be expected to eat elsewhere in such a short time.
Because the employee could not otherwise secure proper meals within a reasonable meal period, such as when there are not sufficient eating facilities nearby.Meals an employer provides as a means of disguising additional compensation to an employee are not regarded as furnished for the convenience of the employer under section 119. The IRS considers a meal as furnished for the employer’s convenience only if the company provided it for a substantial noncompensatory business reason. An employer furnishes a meal for such a reason when providing it
So the employee is available for emergency calls during his or her meal period.
Because the employee must be restricted to a short meal period and could not be expected to eat elsewhere in such a short time.
Because the employee could not otherwise secure proper meals within a reasonable meal period, such as when there are not sufficient eating facilities nearby.
In other words, if a company provides you with a free lunch, it probably is taxable income.
Bloody hell the IRS is a soft touch :-) In the UK they are very strict on benefits in kind.
At one point BT decided that to do away with loads of messy individual kitchens and all the resulting arguments between employee arguments over who had not paid this months tea money. They would provide free tea and coffee in the new big work-style buildings.
HMRC ruled that this was a taxable benefit and so that was that (I have actually seen the letter from HMRC to Group HR)
Here is what J.K. Lasser's Your Income Tax 2010 has to say on the subject:
The value of employer-furnished meals is not taxable if furnished on your employer's business premises for the employer's convenience.
The employer convenience test requires proof that an employer provides the free meals or lodging for a business purpose other than providing extra pay. In the case of meals, the employer convenience test is deemed to be satisfied for all meals provided on employer premises if a qualifying business purpose is shown for more than 50% of the meals. If meals are described in a contract or state statute as extra pay, this does not bar tax-free treatment provided they are also furnished for other substantial, noncompensatory business reasons; for example, you are required to be on call 24 hours a day, or there are inadequate eating facilities near the business premises.
Keep firmly in mind that your salary is only one term in the overall equation adding up your total compensation. Total compensation = sum(salary, daycare, commute costs, conferences, professional development, 401k matching, ...)
Consider, for example, lunch. Here in NYC, a company that buys you a $10 sandwich for lunch every day is giving you $3,330+ salary equivalent (Assuming you're in the 25% tax bracket) [1]
Take the time to sit down and do something along the following lines:
- list out benefits a company might offer
- group them into things you care about and things you don't (don't have kids -> don't need daycare)
- for the things you care about, think about how much each one would cost you to pay for yourself
- think about what minimum level of that benefit you would accept, happy, and ecstatic. (eg. Minimum: company pays for one local conference/year. Happy: one conference anywhere in US/yr. ecstatic: more than one conference anywhere in the world)
- for the ones you DON'T care about, think about how much it costs the company to pay for each
When it comes time to negotiate your compensation, always think in sets. Think (and talk) in terms of how moving any one piece requires movement on a different piece. Give up the things in the "don't care" set to gain at least as much value in the "want" set.
Eg. They want to give you less money, you can agree to that, if they give you X more vacation days.
Eg. They offer free daycare, you say that you appreciate that, but since you don't have kids you would rather have "work at home Fridays" and a slightly larger 401k match.
By considering the total you are much more likely to get a better overall package
[1]
So every $1 the company saves you (by buying your lunch or your monthly parking or whatever) is worth $333 in salary in the 25% tax bracket. (Assuming you don't change to a different tax bracket by the change to your cash salary)