AT&T, Walmart bolster their tax savings

The surprise bonuses that corporations like Walmart and AT&T are bestowing upon rank-and-file American workers are currying favor with the public and President Donald Trump.

But there’s another perk — the companies can use the payouts to minimize their tax bills.

It’s no secret that companies are allowed to deduct most compensation expenses from their taxable income as a cost of doing business. There’s a wrinkle this year, though — since the corporate tax rate was slashed to 21 percent from 35 percent, big firms that account for the expense in 2017 stand to save tens of millions of dollars more in taxes than if they book the expense in 2018.

“That’s a big tax arbitrage play,” said Len Burman, a co-founder of the UrbanBrookings Tax Policy Center and a former senior Treasury tax official.

Take, AT&T — the first major company to announce in mid-December that it would pay one-time $1,000 bonuses to more than 200,000 employees. Since employees received their bonuses before Jan. 1, it’s reasonable to infer that the company would have accrued the expense in 2017.

That means the secondbiggest wireless carrier would be able to deduct $200 million from its taxable income, and under the old corporate rate of 35 percent, save $70 million in taxes. (Since that money could have been considered taxable business income if it hadn’t been doled out to employees.)

If the company had booked the expense in 2018, it would have only been able to save $42 million. AT&T declined to comment on when it will account for the bonus deduction.

While the tax-savings boost will be greater for smaller companies compared to large multinationals with tens of billions of dollars of annual income, it could still be significant, tax experts say.

“These big bonuses will reduce income for the relevant year, which will lower the effective rate for that year,” said James Howard, chair of the tax department at law firm Gardere Wynne Sewell.