Expert: Ed McFarland - 7/21/2006

Question
What about tax consequences?  Bonuses are considered supplemental wages taxable @ 25%.  Profit sharing would be taxable when withdrawn, hopefully at a lower rate.  Correct? Is there anything else I'm not considering?
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Followup To

Question -
I do payroll for a small company and my boss asked for my input on whether it would be better to award bonuses to employees this year or do a 401k profit-sharing distribution instead.  What are the benefits of one over the other?

Answer -
If you have an older work force or high participation in the 401k plan, then the profit sharing makes sense.

On the other hand, if they are young and rash, the bonus would get a bigger bang for moral.

Good luck

Answer
You are right about the taxes.

The issue is whether for moral and incentive purposes, which one works best, which was the point I was making.

Will getting more cash in the pocket inspire people or getting a share of profits in their retirment plan do more?

It's a organizational dynamics question more than a tax issue.

Good luck