Also, don’t forget that they withhold taxes on these huge bonuses, but if you have to pay it back, you have to pay back the entire pretax amount. At least in the few I’ve personally seen. So if you get a 100k signing bonus, you’ll get to take home 60k. But if your terms are to pay back 50% if you only stay a year, they’re gonna demand 50k back, not just half of what you took home (30k). You may be better off trying to negotiate a higher salary, more PTO, etc. if you think there’s a possibility you wouldn’t be staying the entire time.
That tax money isn't gone forever though.
(Not sure if you were implying that or were just saying that it may be very hard to repay in the short term because of how most contracts are written, which is definely true. A lot of people seem to think they are on the hook for the taxes forever if they pay a bonus back, and that's not the case.)
Super disclaimer that I'm not a tax or legal professional, but to my understanding:
-if its the same tax year: the business can file amended paperwork with the IRS to get the taxes back themselves and then you just owe them the net amount they actually paid you.
-If they don't do that, you'll still get a tax refund for the overpayment once you file your taxes if it's the same tax year since your W2 will show your salary only and the amount of taxes you actually paid will be based on your salary + the bonus.
-If it's a year or two later, they can issue you a corrected W2 for the year you got your bonus to reflect your actual pay (ie no bonus received) so that you can amend your taxes and get a refund.
-Or they can just demand you pay back everything in full and then make you deal with the IRS yourself. You'll either have to file a deduction for the repayment or claim a tax credit for what you overpaid in the year you got your bonus if you want your money back.
In your example, if someone signed on for 100K and paid 40K on taxes, they netted 60K. If they only stick out 50% of the contract and owe the company 50K back, their net in pocket is 10K, but they massively overpaid their taxes the first year. The government can't keep all of that because it was taxes paid for 100K of income and they only actually got 50K of income. They'll either get a refund if they amend their previous tax return, or a massive 50K deduction on their current year tax return depending on the timing / what tax documents the company gives them. (All this assuming they didn't blow through their entire bonus and actually have enough cash to pay back what is needed.) They'll still net 30K in the end, it will just be a more convoluted process. (With some glossing over of FICA taxes, which are more complicated to recoup).
Companies are definitely going to try to make you pay them back in full immediately and I think thats how most contracts are written? But I think it's reasonable to try to negotiate better repayment terms that are in your favor - ie making their company deal with the IRS to recoup taxes if it's the same tax year, or forcing them to give you an amended W2 and a repayment plan that accounts for the fact that you're going to have to re-do your taxes and wait on a refund from the IRS.
I never got that far in negotiations because I decided to stick with my government job, but I think it's worth asking for as part of contract negotiations. I did tell clinics I would need enough time to consult a tax/contract lawyer before signing anything.
That's also why I asked clinics about dividing the bonuses over the course of the contract into more of a yearly retention bonus situation instead of a true sign on bonus. Ideally I wanted to try to force the company to recoup taxes from the IRS and not from me if I signed with them and left my contract early. Or at the very least, to be dealing with smaller payback amounts that were more feasible to repay if I was going to have to pay them back immediately and then deal with the IRS myself later / wait on a refund.
I don't disagree that you shouldn't sign a contract if you know you won't stay for the whole thing, but no one should feel trapped by the taxes on their bonus if they are miserable or had a life event that makes them want to leave. Or to be afraid of signing on for a really good bonus because they aren't 100% sure they'll be there 3 years later. There are ways you can protect yourself from the tax headaches / unreasonable repayment plans that can come with a bonus tied to a multi-year contract, but it seems like most people don't try to negotiate for them.
Negotiating a higher salary instead is certainly a consideration, but if your production doesn't kick in until you've earned your keep through your base you're probably leaving money on the table compared to a bonus.
I also asked what would happen with my bonus if I died suddenly or became disabled and couldn't fulfill the contract - absolutely didn't want claims being leveled against my estate if i got hit by a bus or something.
