High earner query - basically over 100% tax on xmas bonus.

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My employer has decided to be very generous and give everyone £5k cash bonus this Xmas (in previous years they have given £2k). I have adjusted my salary sacrifice pension contributions so I earn approximately £96k gross. I cannot amend this until April as per my employer policy. I thought there was enough buffer for bonus and benefits.

problem is if I earn over £100k (I have 2 kids aged 1 and 3 in full time nursery)

• I will pay 60 % tax on my bonus
• i will become ineligible for tax free childcare - worth £333 per month,£4k per year
• I will become ineligible for 30 hours childcare for DD1 - worth £600 per month, £7k per year.

basically because I’m getting this bonus we’ll be much worse off financially - is there anything I can do to avoid this?

Any many of them get taxpayer support towards housing and childcare which the OP is helping to fund.

I haven't read all the comments so apologies if I'm repeating advice that has already been given but I would take unpaid parental leave to reduce my income. It's a statutory right and has the added bonus of time off (priceless in my eyes!). A couple of weeks would take you under the £100k threshold.

You could set up a personal pension and make a contribution to that this tax year if your employer won't facilitate an additional contribution.

Or donate to charity and claim gift aid.

I'd do any of those in preference to refusing the bonus.

Wow I had to comment as just so shocked at so many very nasty and jealous comments. Totally spiteful and uncalled for.

The OP has had a bonus from working in a job. She is asking for advice so she is not penalised for having a bonus.

Childcare is crazy expensive and so are mortgages in some areas. She is trying to do the best for her family.

The nastiness and bitterness of some of these comments are crazy. Instead these jealous people should consider improving their own work/ life/ financial situation if they wish rather than being bitter and jealous to someone else. Such horrible attitudes.

When I see someone doing well in life I feel happy for them and it also gives me a push to reach my own goals.

Treat this poster to a new hair shirt for Christmas?

For those being snappy at op and then claiming they earn similar amount or higher to her im going to remind them maths

from her initial post
problem is if I earn over £100k (I have 2 kids aged 1 and 3 in full time nursery)

• I will pay 60 % tax on my bonus
• i will become ineligible for tax free childcare - worth £333 per month,£4k per year
• I will become ineligible for 30 hours childcare for DD1 - worth £600 per month, £7k per year.

she gets 6k bonus

tax 3.6 goes in tax
Losing of tax free childcare 4 k
Losing 30h childcare 7k

she gets 6k. She has to pay 14.6k

so basically she’s paying back to the system 8k more than now. I’m pretty sure as you’re in a similar scenario to her you’re more than happy to be worse off than now and are not looking at legal ways at how you can reduce the amount of money you loose.

I never get why people are so annoyed others earn a high wage. The only way our country can fund a lot of things including benefits is through taxes on high earners so having a go at high earners just seems crazy.

Treat this poster to a new hair shirt?

I would do chiarity / pension and unpaid leave if you can

With one getting thirty free hours, and after taking advantage of tax free childcare for both? I find that very hard to believe.

You just need to make sure that before the end of the tax year you have put anything over 100k into a pension. If you can’t put this straight into your workplace pension then you could set up a private one in that time. I wouldn’t refuse it!

Having been in the exact same position myself the answer is definitely additional pension contributions. This works well until you hit £160k (used to be £140k) and you can’t reduce your earnings below £100k. I ended up in this position while having to use nursery and I received a £25k bonus and actually ended up marginally worse off.

If your salary keeps rising you can’t avoid the 60% tax trap in the end. Once you get through that you then soon start to hit the joys of pension taper.

I never look for sympathy as a higher earner however I don’t think manly people really understand just how much of your salary you actually end up with. I earn around 200k. That is around 10 times more than someone on minimum wage. They pay £1.5k income tax every year, I pay around £80k. Add on nursery fees and I only receive around half of my salary. The problem with this is that it becomes a disincentive to work more. I’ll definitely retire earlier than intended if the tax rules don’t change.

Ask if it can be paid as an employer pension contribution

Although like the idea of asking not to have it and being paid to lower salaried staff

For goodness sake. It says quite clearly in the title ‘higher earner query’. If you don’t like it, don’t read it and don’t comment on it. It’s like the people who comment negatively about not having children on the childfree boards. Not everyone has the same income and it’s perfectly fine to ask in a forum for advice.

OP, I put all of my bonus into my pension, and up my regular pension limit accordingly so I stay under the £100k bracket. I’d ask if your company offer this.

This.

It's tone deaf.

The most vulnerable will get a £10 bonus. Donate it to those who can't afford to eat this Christmas and give your head a wobble.

There's some very odd responses on here. It makes no sense for anyone to receive a bonus that actually ends up costing them money. Isn't that why the pension pot ceiling was abolished because some doctors ended up paying to work extra hours.

Seriously if you having a go at the OP ask yourself what would you do in the same circumstances?

I'm low income but certainly don't blame the OP for looking at options, it just shows the madness of the system.

"I cannot amend this until April as per my employer policy. I thought there was enough buffer for bonus and benefits."

This is a ridiculous policy. I would be challenging that with this as an example of the issues it can cause.

As others have said your options are:

• Open a SIPP and contribute enough to take you under the £100,000 adjusted net income.

• Make a charitable payment (you can then deduct the payment plus basic rate gift aid from your adjusted net income).

• Ask employer to give you a lower amount

Remember that lots of income that isn't taxed is still "taxable" and is included when working out your adjusted net income eg dividends and interest paid outside of an ISA.

www.gov.uk/guidance/adjusted-net-income#:~:text=If%20you%20made%20a%20Gift,1.25%20from%20your%20net%20income.

This is really depressing. OP complaining about a £5k bonus/complaining things are a bit tight. And others posters claiming £100k salary isn’t actually that much.

What a dilemma!
Ask HR for advice, donate to charity or refuse it.
problem solved!

I understand the lack of sympathy for higher earners, but it does grate when you're paying more than a thousand pounds a week in tax for services that you can't enjoy and people still stick the boot in.
This ridiculous situation is a diversion by the government (irrespective of who's in charge) to distract from those with extreme wealth and the opportunity to get their cash tax free by exploiting loopholes that HMRC seems keen to allow.
These threads are painful, but might help people to understand why their GP, dentist or hospital consultant is only working three days a week.

Ask for employer pension contributions instead of receiving it

@TheIndecisiveElf how long ago was that though? I’m SE and pay £2,010 a month for full time nursery for one child so don’t think the OPs 3.8 for two is unrealistic

If you’re going to be worse off financially isn’t it fairly obvious what you should do.
Don't accept it
or
better still ask your employer to give it to a charity of your choice. He/she obviously needs to offload profit so what better way to do it.

Ask for a lower amount and use the remainder to buy extra annual leave.

Apologies, I have not read the full thread - do not wish to because of the obvious!

I work in payroll you mention having a salary sacrifice pension most companies in addition offer an option of a voluntary contribution that can be made by the employee (not matched by company)

I would suggest putting the amount that will affect you current income into a one time Salary Sacrifice AVC contribution - you will have no affect on what you currently claim but will still have that bonus added into your pension pot

Many employees in my company have this for bonuses etc

One of my colleagues used to ask for bonuses to be delayed sometimes (we were higher earners and very heavily bonused on top but it varied widely month to month). I

You don't need to explain yourself to these bitter people. I'm sure you worked hard to get to where you are and if you hadn't, you'd be on much less. High salaries usually come with high stress and other sacrifices.

Haters should take notes. It's not all roses.