Beware the CPA Exam Bonus Clawback

By | 4 weeks ago

You just handed in your notice and finally pulled the trigger on resignation from public accounting. It’s both liberating and terrifying. Your email box fills with things you have to do before you leave. It’s a mix of run-of-the-mill farewells and requests to set up an exit interview and transition meetings for each of your clients.

And then, you get this:

Repayment Agreement Monies Due

Dear XXXX,

This letter serves as notification that as a result of your decision to leave the Firm you are required to repay monies owed to the firm.

You were paid a CPA Incentive Award of $5,000 on 1/31/20XX. Per the terms of your Incentive Award Form, you are required to repay the Incentive Award in full to The Firm within one year of payout date you terminate your employment. Since your departure date from the firm, 12/14/20XX, is within one year of your payout date, full repayment of the Incentive Award is required.

The total amount due back to the firm upon your termination is $3,235.50.

IRS regulations require that if monies were paid out in subsequent years, then you are required to pay back the gross amount less FICA taxes. Once the total amount due is received, you will be issued a revised W-2 (W-2c) so you can make the appropriate adjustments to your Federal and State Taxes.

The Firm reserves the right to pursue collection of any balance not paid within 60 days of termination unless otherwise agreed to.

Seriously?

Unfortunately, yes.

You finished the CPA exam and are rewarded with a generous $5,000 bonus. Go you! But it has a few strings attached. The most important is that you can’t quit within the next year.

Sure, the policy seems fairly clear when you initially received the CPA exam incentive. You must stay for one year. Period. There’s no vesting for a partially completed service period.

The ramifications of this policy are not fun. I know from personal experience. And, if you want to avoid the misery of a bonus clawback, learn from my experience. You don’t want to go through it too.

First, I effectively paid to quit since my final paycheck didn’t cover the amount of the bonus repayment.

Second, I was frustrated that even though I had passed the exam and submitted my paperwork one year prior to quitting, the bonus didn’t get processed promptly and paid out until the end of January. I have a feeling this lag on the payout was on purpose, but maybe I’m still bitter.

And while that $5,000 (or, $3,235.50 after taxes) seems trivial in the grand scheme of life, it was a lot at the time. I was just lucky I had the money in the bank to write the check. I suspect not everyone has the cash sitting around. For example, I know many people used it to pay off some of their student loans. Others use it to foot the bill on an extravagant “the CPA exam is over forever” vacation.

Generously, HR did offer to set up a payment plan, if I needed one…

It’s clear that the Big 4 do not market their exam policies much and I’m sure the stipulations of the service requirement are not advertised. Plus, the threat of owing your firm money if you think about leaving is a sure way to increase retention. I know it made me think twice.

Moral of the story: If you plan on leaving your firm after getting a bonus, don’t get caught off guard. Either tough it out until the day your bonus paid out or be sure you have the cash.

I’m curious, has anyone else experienced this at their former firm (Big 4 or not)? What other incentives and bonuses are clawed back by firms?

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