Tax-Free Bonuses Tagged Out -WP

......the Treasury Department discovered not long ago that some taxpayers have been dusting off an old Internal Revenue Service ruling about signing bonuses in baseball contracts and using it to justify skipping payroll taxes and income-tax withholding on signing bonuses generally.

Similarly, some unions and employers have been using that and other old IRS rulings to avoid payroll and withholding on ratification bonuses that sometimes are offered as inducements to union members to approve a new contract.

In both cases, recipients are liable for income taxes when they eventually file their returns, but they and their employers can escape Social Security, Medicare and other such payroll taxes entirely.

"It's a nice way to save some change," a Treasury official said.

So last week, Treasury and the IRS slammed that particular door shut.

http://www.washingtonpost.com/wp-dyn/articles/A15941-2004Nov27.html