It probably won’t happen for the amounts you’re talking about, but the IRS (or state tax authorities) CAN decide this is intentional evasion—your foregone pay is actually a gift, and you (and your employer) will owe back taxes on the under-priced labor.
More importantly, if the company goes under or their or your missions diverge and you want to work elsewhere, it’s much harder to confidently ask for the right pay at your new employer if you’ve been underpaid for a long time.
the IRS (or state tax authorities) CAN decide this is intentional evasion—your foregone pay is actually a gift, and you (and your employer) will owe back taxes on the under-priced labor.
Link? Waiving pay after it has been received for tax purposes (earned, essentially) is different, but agreeing to a salary of $X when your employer would have been willing to pay you $2X is not treated as a gift, as far as I can tell.
Actually, I’m misremembering a discussion with my wife (who’s an accountant, and has worked for nonprofits for the last <mumble> years. She was not allowed to work for $0, as it would be considered an in-kind donation of services, and there’d be weird tax hassles. Working for less than the charity’s pay band for that job (which is often less than industry competition already) is probably OK.
That’s still surprising to me: many professionals do substantial pro bono work, and I’ve never seen that taxed. (There are lots of online questions where people ask whether you can deduct the lost income on your taxes, to which the answer is a very clear no, but if you had an obligation to report the waived income as income I would expect that to be mentioned there.)
It probably won’t happen for the amounts you’re talking about, but the IRS (or state tax authorities) CAN decide this is intentional evasion—your foregone pay is actually a gift, and you (and your employer) will owe back taxes on the under-priced labor.
More importantly, if the company goes under or their or your missions diverge and you want to work elsewhere, it’s much harder to confidently ask for the right pay at your new employer if you’ve been underpaid for a long time.
Link? Waiving pay after it has been received for tax purposes (earned, essentially) is different, but agreeing to a salary of $X when your employer would have been willing to pay you $2X is not treated as a gift, as far as I can tell.
Actually, I’m misremembering a discussion with my wife (who’s an accountant, and has worked for nonprofits for the last <mumble> years. She was not allowed to work for $0, as it would be considered an in-kind donation of services, and there’d be weird tax hassles. Working for less than the charity’s pay band for that job (which is often less than industry competition already) is probably OK.
That’s still surprising to me: many professionals do substantial pro bono work, and I’ve never seen that taxed. (There are lots of online questions where people ask whether you can deduct the lost income on your taxes, to which the answer is a very clear no, but if you had an obligation to report the waived income as income I would expect that to be mentioned there.)