Why your holiday bonus was given to charity
In the wake of recently enacted tax cuts, some workers have been surprised with year-end bonuses. Others are seeing their bonuses go to other people.
The number of companies that are letting workers donate to charity in lieu of getting a cash bonus has shot up this year, a study suggests.
Overall, fewer companies this summer planned to give their workers bonuses, according to a study from Accounting Principals conducted in September. Some 63 percent of companies said they planned to give year-end bonuses, down from 75 percent the year before.
Of those that aren't giving bonuses, 38 percent said the reason was they would give to charity instead. That's a huge jump from 2015 and 2016, when the figure was 5 percent and 7 percent, respectively.
"It's a pretty drastic increase," said Jeramy Kaiman, vice president at Accounting Principals.
Kaiman named several possible reasons for this shift, including the large number of humanitarian disasters in 2017 and businesses' growing desire show they're in line with their employees' values. But there's another reason companies might consider spending before the year is out: the tax bill just signed into law by President Donald Trump.
"The financial incentive to give out more bonuses by the end of this year is for the corporation to have more business deductions in 2017 while the tax rate is high," said Mildred Carter, a senior federal tax analyst at Wolters Kluwer Tax & Accounting.
Tax rates will be significantly lower next year, thus blunting the tax benefits of donating to charity. That's one reason that charities are seeing a surge in year-end donations -- and a cause for worry for many nonprofits, who worry that giving will be blunted.
To be sure, tax breaks aren't the only reason to give to charity, but they help. For a taxpayer who itemizes and is in the 28 percent tax bracket, donating $1,000 "costs" only $720.
That raises the question of who benefits from a donated bonus: the employee or the boss?
The answer depends on how exactly the bonus is framed, according to Carter.
"The bottom line will be if the bonus is included in [the] employee's income," she said via email. "If it is not included in income by the employee, it appears that the company should be able to claim the deduction because the employee should not be able to donate and claim a deduction for something he has never received or owned."
So a company that tells its workers it will donate to charity in lieu of bonuses could reap the tax benefits, even if employees choose the charity.
If you want to write off donations made through a payroll deduction, you need two things, according to IRS guidance: A W-2 or other document showing the contribution, and a pledge card or receipt that shows the name of the organization getting the funds.