Bonus or a raise – what would you choose?

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My company gives quarterly reviews and sometimes it includes a bonus. Moreover, I receive raises. Within the last year, our director of operations asked me if I prefer receiving a bonus or a raise. Without giving it too much thought, I said I’d prefer a raise.

As a result, I no longer receive bonuses but now receive more raises.

After giving it more thought, I still choose raises overall, but let’s explore why.

Bonus or a Raise?

When I decided to delve a little deeper, I did what most wise personal finance bloggers do…I took a poll on Twitter:

As you can see more folks chose a raise over a bonus. Additionally, I received some good comments on people’s reasoning. Since I some of you may not be on Twitter, I thought you may appreciate reading the feedback.

If you decide to get on Twitter, you can follow little ole’ me here. 

Without further ado, I present you the lovely feedback I received from the Twitter community (in no particular order):

Yep, my thoughts exactly.

Both would definitely be nice! Tim has an awesome blog and book titled, The Profit Dare.

Actually, I think I told the director of ops that exact thing. SavorLa gets the win for the best hashtag.

Yeah, I kind of agree, Sarah.

Jamila has an awesome podcast, Journey to Launch, which I highly recommend. Hmm, this answer might have been influenced by her recent announcement that she quit her job!

Smart answer. Okay, I did place this one after Journey to Launch’s comment so I guess there is some particular order. 😉  Jay writes over at 5 to 9 living.

Chef on FIRE writes over at, you guessed it, Chef on FIRE.

Michelle was the first one to bring up this excellent point about a higher salary giving you more negotiating power. Nice! BTW, Michelle is a debt-free lawyer and writes over at Struggling to be Debt Free.  

My buddy, Military Dollar, was the first to comment with these wise words.

All excellent points, Mr. Teach, Money, Life.

Thanks, Side Hustle Girl!

The right answer is often situational as of Mice and Money‘s comment indicates.

This seems to be a theme as you’ll see when you read on. BTW, I love Kevin’s blog name, Life Reboot Project.

Touche, FIRE the 9 to 5, touche. This one made me think because I do agree with the saying, a bird in the hand is worth two in the bush, but I mostly love my job so I’m still going with the raise.

Sure is, Financial Orchid!

Love the logic here. Dillon is a moderator at ChooseFI and Mustachians in Practice Facebook groups and is the author of funny comments.

Who likes debt with their cupcakes? Not these two RNs! They paid off their debt and are now pursuing financial independence and I suspect, like cupcakes.

Maybe.

Fair enough. Amanda Page is an awesome writer, FYI.

Yep worthy point.  Allyson writes over at Auditing Myself. Love the name.

Aah, If only I could go back to that conversation I had with the director of ops and say, both. Al is the author at The Water Whole Online.

And last but not least…

Haha, this comment didn’t help me decide but it definitely made me laugh out loud. Nicely done, The 76K Project.

Final Thoughts

I trusted my gut reaction on this because I think about money a lot. Additionally, having some feedback from the personal finance community confirmed my reasoning.

Ultimately, it comes down to a person’s specific situation and career path. For me, I plan on staying at my job until I retire so the compound effect of raises makes mathematical sense.

A bonus makes sense for someone who is not going to be at their current job long. Additionally, if you are better at managing lump sums of money, take the bonus.

This is the first year, I’ve chosen to receive raises over bonuses. I will see how my final salary turns out for 2018 compared to previous years.

Now, it’s your turn. How would you react? What would you choose – a bonus or a raise?

 

14 thoughts on “Bonus or a raise – what would you choose?”

  1. Bonuses are not taxed at a higher rate! This is a huge misconception (and a great blog post idea, thank you).

    They have taxes withheld from them at a higher rate because for every paycheck, taxes are withheld assuming that you are paid at that rate for the entire year. So if you’re paid monthly, the system assumes that you will earn 12 times that much in wages over the course of the year. Obviously if you get a bonus that month, that’s not going to be true. Because it’s using a larger number for your assumed total earnings and our tax system is progressive, it’s going to withhold a larger percentage for taxes.

    There’s another way to prove this: if bonuses were taxed at a higher rate, then there would have to be a special box on your W-2 to separate out your bonus from other income. Such a box doesn’t exist.

    Bonuses are treated the same as any other wage income. Any discrepancies between taxes withheld and taxes actually owed will be sorted out once you file your tax return

    1. Write that blog post, Seonwoo!! Thanks for coming over, reading and commenting. With your explanation, it is very easy to see how that misconception is formed.

      I love this community holding me accountable to getting more knowledgeable.

  2. I would definitely take a raise over a bonus. As some of the Twitter-ers pointed out, bonuses can vary year to year (or stop occurring), whereas the raise will likely go on indefinitely.

  3. Raise over a bonus every day. Simply because a raise develops a new floor for your income for next year. Bonuses are usually expressed as a percent of pay. So between the two having base pay increased leads to higher pay and higher future bonuses.

  4. Our company has started giving lump sum cash, if your 110% at the median market salary rate for your position. I’ve always taken a salary increase over the bonus because you see it in the long run. Plus the company places 10% of my salary into a 403B, soon to change to a 401K. Now that I’m considered at a high percentage with my salary, I only received cash this year, first time out of the 14 years with the company. I was not a happy girl. In 2019 to obtain the same 10% dollar amount into my 403B as I did in 2018, I need a really good raise this year. My company definitely tax our bonus higher because its based on annual payout, then I barely see the extra dollars. My two cents worth. Momm Lemon

    1. Hey thanks, lady. You brought up an excellent point which I’m surprised no one else did. If our company puts a percentage into our retirement account, we want that salary as large as possible! Thank you for that reminder.

      Read Seonwoo’s comment in this thread about it being a fallacy that bonuses being taxed at a higher rate.

  5. How cool to have made the list 😀

    It’s great to see people happy enough in their jobs to be thinking long term with raise. I stand by the “depends” answer though. If you are changing jobs often or work at a company that frequently has layoffs (so move does), it might be better to take the bonus.

    I think the saying goes “a bird in the hand is worth two in the bush” in those uncertain situations.

    1. Hey Jay! Thanks for contributing to this 😉

      I totally get the reasoning for it depends. It definitely could be a different answer for every person given their specific job situation.

  6. Pingback: Negotiating for a Raise as a Woman - Ms. Fiology

  7. You got some really good twitter comments, I was initially thinking of course raise, but as others pointed out, if you’re not planning on staying at the company long term then bonus might be the better route, so really there is no one answer, it depends on the individual’s situation.

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