CARF Newsletter - May

CSRF: SOCIAL SECURITY CONTRIBUTION IS NOT DUE ON HIRING BONUS

In analyzing the taxation of the hiring bonus paid to executives, the Superior Chamber of Tax Appeals dismissed a tax assessment that attempted to collect social security contributions on hiring bonuses due to the legal nature of the payment. According to the decision, the hiring bonus has the nature of an indemnification.

The Federal Revenue Service argued that such payment should be taxed since it has a direct relationship with the directors’ work. In a unanimous vote, however, the Chamber decided that the hiring bonus is not a salary payment and, therefore, cannot be taxed via social security contributions.

The timing of the payment (before the hiring itself) and the fact that no goals were required to be met by the beneficiary to receive the bonus were the main points that led the Judges to exclude taxation. The CARF definitively canceled the tax assessment, and the Federal Revenue Service can no