Wall Street workers may want bonuses ahead of possible Biden win for tax reasons
Wall Street firms may start facing pressure to pay out bonuses earlier than usual as their employees worry about the prospect of higher taxes under a Biden administration and Democrat-controlled Senate.
Employees may ask to receive year-end incentives before the end of 2020 instead of early next year, when they would typically get the bonuses, said Alan Johnson, president of Johnson Associates Inc., a New York-based compensation-consulting firm.
“You’re going to hear about, ‘This firm did this, and that firm did that,’” Johnson told companies at a virtual industry conference Monday. “You don’t want to be caught unaware.”
Democratic presidential candidate Joe Biden’s tax plan, if passed, could decrease the amount that traders and investment bankers take home from the roughly $30 billion Wall Street sets aside each year for bonuses. The plan seeks to expand taxes for annual incomes above $400,000 and to tax capital gains the same as regular income for top earners.
Johnson told companies they should still prepare for tax rates to increase next year regardless of who wins federal elections, given the U.S. government’s need to increase revenue. States including New York, New Jersey, Connecticut and California have also signaled rate increases, he added.
Firms in the past have accelerated bonus payments in response to changes in tax policy. President Donald Trump’s tax plan, passed at the end of 2017, limited the amount of federal tax deductions high earners could claim for their state and local taxes, prompting some firms to hand out bonuses before the end of the year, said Fred Farkouh, a partner at New York-based accounting firm Farkouh Furman & Faccio LLP.
Moving up incentive payments wouldn’t affect finances for many companies, as they would have already planned to record year-end bonuses in their accounting for 2020, even if they were expecting to distribute them in 2021, Farkouh said.
— With assistance from Jenny Surane