Many American banks already pay minuscule federal income taxes, because of various deductions and clever tax planning; the payout-related breaks will reduce their tax bills further in coming years.
The biggest tax break will go to Goldman Sachs. It expects to award its employees $23 billion in bonuses — the most in its history — after having paid back $10 billion. Because most employee compensation is a deductible expense under tax laws, Goldman Sachs, which is technically taxed at a top corporate rate of 39 percent, will save about $9 billion in federal income taxes on the bonuses it pays out for 2009, Mr. Willens said.
The tax breaks cover both cash awards and stock options. Banks can generally carry back losses related to compensation two to five years or forward 20 years, depending on when the payouts are made in a given tax year.
Employees who receive bonuses pay taxes on them, often at the top personal rate of 40 percent, so that money flows back into federal coffers. But because the banks get the expense-related deductions, the actual cost to the banks of paying $200 billion in bonuses is only $120 billion, Mr. Willens said.
Complete story at: New York Times