When it rains, it pours! Two of my friends got new jobs and both were offered signing bonuses. Is this common now? I have a few questions about signing bonuses.

  1. What is a signing bonus?
  2. Is there a “gotcha” I need to know about?
  3. When is a signing bonus typically paid out?
  4. Is a signing bonus taxable? If yes, at what rate?

Thanks for your answers.

Nick’s Reply

signing bonusYes, I’m seeing more signing, or “starting,” bonuses nowadays. Let’s answer your questions in the order you asked them.

1. A signing bonus is a one-shot deal

In a competitive job market, companies do all they can to attract the right kinds of people. If a company really wants to hire you but fears a competitor might snatch you up first (or that you’ll stay with your current job), they’ll pony up a bonus to get you to sign on. Or, they may offer a one-time bonus to compensate for something you’ll be forced to leave behind at your old job — like an imminent raise or sales commission.

That’s what a signing bonus is: a one-time inducement (though it may be in multiple payments) to get you to take the job.

2. Some signing bonus gotchas

Any bonus is a good thing, as long as you understand the terms. Here are some gotchas that may surprise some people.

Be aware that the bonus probably won’t affect your salary, or a review and raise, or the basis for any life insurance coverage, or your 401(k) program. That is, if you accept a salary of $100,000 and a signing bonus of $20,000, and you’re given a 5% raise next year, your new salary will be $105,000 — not 5% X $120,000.

Any benefits you get that are based on salary will not be affected by that bonus, because it’s usually not considered salary.

Companies love that, because it’s a short-term, one-time expense to them. Don’t let anyone convince you that a $100K salary plus a signing bonus of $10K is the same as a $110,00K salary without a bonus. Long term, there can be big differences because there’s nothing long-term about a one-time bonus.

Here’s a particularly sneaky gotcha. An employer hired a hotshot sales person and made the signing bonus contingent on the new hire turning over their book of business to a more senior sales person in the company. It was a nasty surprise because the new hire didn’t read the agreement carefully.

3. A signing bonus may not be paid all at once

Signing bonuses can be paid out any way the company wants (and you agree). It’s likely to be paid out over time. That’s because your new employer wants you to stick around. After all, you could accept the job, pocket the entire bonus, and quit six months later.

They’re probably going to spread the payments out, or make you sign an agreement saying the bonus is recoverable if you leave the job in less than, say, a year.

In some cases, they won’t make any payment on the bonus until you’ve been on board for an agreed-upon period of time. Read the fine print, and negotiate.

4. Tax consequences

I don’t give tax or legal advice, so you should check with a CPA and perhaps a lawyer about your specific situation.

Generally, a signing bonus is typically taxable as income. It’s considered part of your total earnings, and whatever your income tax rate is, that’s what you’ll pay on the bonus. The only way around this expense is if the company factors it up to cover the tax on the payment — but you still pay the tax. (Factoring up makes an interesting negotiating gambit.)

At executive levels complex deals can be struck using financial tools and techniques we mortals are not likely to have access to.

Settle it before accepting an offer

You should get all your questions about a signing bonus — and all aspects of your compensation — answered before you accept a job offer. If what you’re told is not reflected in the written offer or agreement, insist that it be added.

The terms of signing bonuses vary from situation to situation. If an employer offers a signing bonus, settle all the details in advance.


Finally, remember that a signing bonus is just as negotiable as any other part of an offer. In fact, if no signing bonus is suggested as part of your job offer, you can ask for it.

If the employer absolutely won’t budge on salary, and you won’t accept what’s offered, suggest that a one-time signing bonus could close the deal without breaking their salary rules and scales. Of course, keep in mind that this won’t have the effect of a higher basis for raises and other benefits — but it’s still more money for you.

Have you been enticed to take a job because they offered a signing (or “starting”) bonus? How was this bonus structured? Were you able to negotiate it? When is it smart to accept such a bonus, and when might it not be so smart?

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  1. That pretty well covers it. I’ve had 1 or 2 of them & there’s not much of a down side. And it helpful especially if you’re making a physical move. It seems when you move there’s costs involved you didn’t think of.
    As to taxes, if you’re landing near end of year or even in 3rd quarter. You may want to ask that you be paid that start up bonus in the next tax year. You’re going to pay the taxes, but if you happen to sit on the edge of a tax bracket the kicker may shove you into a higher bracket upping your tax for the whole year higher than expected.

    You’ve pretty much covered it from the company view. As a hiring manager I liked to be positioned to bring them into play. If it’s high enough I could avoid possibly red lining someone for their next/1st raise and give me some time to head one off anyway.

    • What concerns me is that in today’s competitive hiring market, these bonuses are a lot more common, and it’s easy for an eager job candidate to accept a tasty signing bonus rather than negotiate a better salary.

      • that’s a valid concern. 1st because so many new hires have NO experience with bonuses per se. And the lump sum looks great & as you say overshadows common sense comp discussions. with NO experience they can’t or don’t even compare bonuses to see if it’s low, par or higher than the market.

        the company likes them also because they don’t fall inside the pay structure. don’t have to mess with their ranges, don’t have to mess with cost of living.

    • Don included an interesting aside regarding raises: he likes to use sign on bonuses to “head of raises.” Or did I misread?

  2. @Wes No they don’t & can’t head off raises. Bonuses fall outside of the company’s normal salary administration and budgets. They are 1 time only specials. Raises will still be administered in side that process, so they’ll get their startup bonus & when the time comes, their raise. The wrist doesn’t touch the hands on that one.

    Though not the same thing, usually college recruitment programs work somewhat the same way. I liked them too as I could hire grads without burning up the # approved (experienced) hires. Even in hiring freezes. They were particularly welcome if I could find those people who had some real experience & took time off to get a degree, post grad degrees.