Signing Bonus

DEFINITION of 'Signing Bonus'

A financial award, often issued in one or two lump-sum payments, offered by a business to a prospective employee as an incentive to join the company. A signing bonus may consist of cash and/or stock options. Businesses offer signing bonuses to highly qualified job candidates to differentiate themselves from other businesses where an individual might consider accepting a position. Typically only salaried jobs pay signing bonuses.

BREAKING DOWN 'Signing Bonus'

Signing bonuses are more common in certain industries and for certain positions. If the recipient of a signing bonus quits within a short time after accepting the position, he will probably have to return all or a pro-rated portion of the bonus.

Signing bonuses, like other types of bonuses, often appear to be a major windfall, but because the money is taxed at the recipient's marginal tax rate, much of the bonus will end up going to the employee's federal and state government. An individual who receives a $10,000 signing bonus and is in the 28% federal tax bracket will lose $2,800 of the bonus to taxes, leaving only $7,200. In most states, state income tax would further erode the value of the $10,000 bonus.

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