A job interview can be nerve-racking, but once you’ve aced it and gotten the job offer, your excitement may have to be delayed again until you’ve completed the salary negotiations.
There is so much to consider to ensure that the job move is worth your while and that you’ll be compensated fairly. And now, there’s one more thing to think about when negotiating—a signing bonus.
A signing bonus is a payment given to employees when they accept an employment offer. A growing number of employers are using bonuses to attract key talent, according to a 2016 survey by WorldatWork .
Signing bonuses are particularly prevalent in the manufacturing, finance, and insurance industries, according to the study, but are gaining favor in other areas as well. This bonus is usually made as a one-time payment, and yes, you will pay taxes on it. Also, if you voluntarily leave during your first year of employment, many companies will ask you to return the bonus.
While these payments are typically higher for executive and upper-level positions, often ranging from $10,000 to $50,000, they’re becoming more common for clerical or technical positions, where they are typically in the $5,000 range.
While most companies budget for signing bonuses , there’s a good chance the human resources department may hold out on offering one unless a candidate specifically asks. So, even if your initial job offer doesn’t include a signing bonus, it might be worth it to simply ask for one.
How Signing Bonuses Work
Employers aren’t obligated to offer job candidates a sign-on bonus. But they may choose to extend this one-time financial benefit in order to:
• Attract new talent, especially in a competitive hiring landscape
• Close the gap between a candidate’s desired pay and what the company is able to offer
• Compensate for any benefits a new hire might otherwise miss out on by changing jobs or forgoing other job offers
If you’re being considered for a job, the hiring company can include a signing bonus as part of their job offer. You can then decide whether to accept the bonus and the position, attempt to negotiate for a larger sign-on bonus or walk away from the offer altogether.
Should you accept the offer, sign on bonuses can be paid out to you as a lump sum. Or you may be asked if you’d like to accept some or all of the bonus as stock options. Just like any other bonuses, salary or wages you receive, a signing bonus is taxable . So you’ll have to report that money on your tax return when you file.
If the signing bonus is paid with regular pay, it’s taxed as ordinary income. If it isn’t, then the sign-on bonuses are taxed as supplemental wages. For 2020, the supplemental wage tax rate is 22%, which increases to 37% if your bonus exceeds $1 million.
Employers withhold these taxes and pay them to the IRS for you. So when you actually get your bonus, you’re getting the net amount, less taxes withheld. Additionally, bonuses, whether they’re paid when starting a new job or as a year-end bonus, may also be subject to Social Security and Medicare tax as well as state income tax.
Pros & Cons of Signing Bonuses
Receiving a sign on bonus could make a job offer more attractive. But before you sign on the dotted line, it’s helpful to consider the advantages and potential disadvantages of accepting a bonus.
Signing Bonus Pros
It could help make up a salary shortfall. If you went into salary negotiations with one number in mind but the company is offering something different, a sign-on bonus could make the compensation package more attractive. While the bonus won’t carry on past your first year of employment, it could give you a nice initial bump in pay that might persuade you to accept the position.
You may be able to use a bonus as leverage. When you have multiple companies making job offers, you could use a signing bonus as a bargaining chip. For instance, if Company A represents your dream employer but Company B is offering a larger bonus, you might be able to use that to persuade Company A to match or beat their offer.
A bonus could make up for benefits package gaps. Things like sick pay, vacation pay, holiday pay, insurance and a retirement plan can all enhance an employee benefits package. But if the company you’re interviewing with doesn’t offer as many benefits as you’re hoping to get, a large sign on bonus could make those shortcomings easier to bear.
Signing Bonus Cons
You could see a bigger tax bill in the short term. Since sign bonuses are taxable as supplemental wages, you might see a temporary bump in your tax liability for the year. You may want to talk to a tax professional about how you could balance that out with things like 401(k) or IRA contributions, deductions for student loan interest payments and other tax breaks.
Changing jobs might mean having to repay the bonus. Employers can include a clause in your job offer that states if you leave the company within a certain time frame after hiring, say one year, you’d have to pay back any sign on bonus money you received. If you have to pay back a bonus and don’t have cash on hand to do so, that could lead to debt if you have to get a loan to cover the amount owed.
You might get stuck in a job you don’t love. If your employer requires you to pay back a signing bonus and six months into the job, you realize you hate it, you could be caught in a tough spot financially. Unless you have money to repay the bonus, you might have to tough it out with your employer a little longer until you can change jobs without any repayment obligation.
Tips on How to Ask for a Signing Bonus
If an employer doesn’t offer a sign on bonus, you don’t have to assume it’s off the table. It’s at least worth it to make the request, since the worst that can happen is they say no.
Here are some tips on how to ask for a signing bonus and what to do with your windfall.
1. Know your value to the company
Before asking for more money, either with a bonus or your regular salary, get clear on what value you can bring to the company. In other words, be prepared to sell the company on why you deserve a signing bonus.
2. Choose a specific amount
Having a set number in mind when asking for a bonus can make negotiating easier. Do some research to learn what competitor companies are offering new hires with your skill set and experience. Then use those numbers to determine what size bonus it makes sense to ask for.
3. Make your case
Signing bonuses are gaining steam in industries such as technology, engineering, and nursing, where there is more competition for the best job candidates. You are also sometimes in a better position to ask for a signing bonus if the company did not meet the salary you asked for when interviewing—a signing bonus is an opportunity to recoup some of that difference. Regardless, it never hurts to consider asking for more money.
Just be sure to do your research first. For instance, perhaps discreetly ask your contacts whether the company might be open to offering a signing bonus and be sure to look at comparable salaries on Glassdoor, Indeed, and Salary.com to see how your job offer stacks up.
4. Split the difference with your salary
One way to potentially have your cake and eat it too when it comes to signing bonuses is to use your salary to offset it. Specifically, instead of asking for a large bonus you could ask for a smaller one while also asking for a bump in pay.
An employer may be more open to the idea of paying you an additional $2,000 a year to keep you on the payroll, for instance, versus handing out a $20,000 bonus upfront when there’s no guarantee you might stick around after the first year.
5. Get it in writing
If a signing bonus wasn’t part of your original job offer, and you’ve negotiated for one, make sure you receive an updated contract with the bonus included.
The agreement should spell out the amount of the bonus, how it will be paid (separate check or part of your regular paycheck), and the terms of the bonus. The contract should note how long you need to stay employed at the company to retain your bonus (typically one year).
How to Maximize Your Signing Bonus
After receiving a sign on bonus, the next question should be: What do I do with the extra money?
There are a variety of ways you can put a signing bonus to work. For example, if you have credit card debt, your best move might be to pay that off. This could be especially helpful if you have credit cards with high interest rates.
You could also use a sign on bonus to eliminate some or all of your remaining student loan debt. But if you’d rather save your bonus, you might refinance your loans instead and use the bonus money to grow your emergency fund. Having
three to six months’ worth of living expenses saved up could be helpfulin case you lose your job or get hit with an unexpected bill.
You might also think about longer term savings goals as well, such as buying a car or putting money down on a home. Keeping your savings in a liquid account that earns a high interest rate can help you grow your money until you’re ready to use it.
Using Your Bonus for Retirement
If you are caught up with your credit card payments and you already have an emergency fund, you might think about investing your bonus.
This could be a great financial move when you consider that a $5,000 signing bonus isn’t as lucrative as negotiating a $2,000 increase in your annual salary. If you can’t negotiate the higher salary, you can at least use your bonus to invest. Investing can be a good way to build wealth over time.
For example, you might use part of the money to open a traditional or Roth Individual Retirement Account. This can help you get a head start on saving for retirement and supplement any money you’re already saving in your employer’s 401(k). And you can also enjoy tax advantages by saving your bonus money in these accounts.
Start Putting Your Signing Bonus to Work
Investing a portion of your bonus can allow you to take advantage of compounded interest over time. But it’s okay to start investing without much money. With a SoFi Invest® account, you can start online investing with as little as $1.
Adding bonus money to an investment account can put you one step closer to your financial goals. Whether that’s buying a house, traveling the world, or starting a family, it’s important to make the most of this valuable employee benefit
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.