What Bobby Bonilla Day Can Teach Us About Deferred Compensation

Every year on July 1, Bobby Bonilla collects a check for $1,193,248.20 from the New York Mets. He has done so every July 1 since 2011 and will continue to do so through 2035. The date is so well known that baseball fans simply call it Bobby Bonilla Day.

For Mets fans, it is an annual punchline. For tax folks, it is something else: a reminder that when you get paid can matter almost as much as how much you get paid.

The Deal Behind The Day

Bonilla has not played for the Mets since 1999. In 2000, the team agreed to buy out the remainder of his contract, which was worth $5.9 million. Instead of paying him in a lump sum, the Mets agreed to defer the payments until 2011—and pay interest. Beginning that year, Bonilla would receive annual payments of $1,193,248.20 through 2035. The payments total about $29.8 million.

Separately, Bonilla also receives $500,000 each year through 2028 under another deferred comp arrangement from the Orioles connected to his earlier trade.

Paying the $5.9 million immediately would have required a large cash outlay. Mets ownership reportedly believed it could earn returns on its investments, including investments with Bernie Madoff, that would outpace the 8% interest promised to Bonilla. (Madoff was arrested in 2008 and later pleaded guilty to 11 federal charges, including securities fraud.)

How That Relates To Everyday Taxpayers

Not every company has money invested in something that later becomes a Madoff-level mess. But there is almost always a reason for a deferral, and often, it comes down to cash flow.

Other times, the arrangement may be preferred by the employee. Some employees, especially highly paid executives, may want to defer income—and potentially tax—to create an informal retirement-focused cash flow, or avoid receiving a large payment in a year when other income is already high (such as when bonuses are paid).

The goal is to make both sides happy. That’s what happened here—sort of (Mets fans notwithstanding). The Mets got short-term cash flexibility. Bonilla got a long-term income stream with an attractive interest rate.

The Tax Question: When Is It Income?

For most individual taxpayers, income is taxed when it is actually or constructively received. Actual receipt is easy—that’s when you get paid.

But you can also be treated as though you’ve received income even if you do not physically have the cash in your pocket through something called constructive receipt. Under current law, income can be constructively received when it is credited to your account, set apart for you, or otherwise made available to you. But income is not considered constructively received if your control is subject to substantial limitations or restrictions.

That’s why your paycheck is taxable to you when the company directly deposits it or cuts you a check, even if you put the check in a drawer and choose not to cash it. Qualified retirement plans are different because they operate under their own tax rules, including rules that generally defer tax until distribution.

Deferred Compensation

Deferred compensation is compensation earned in one period but paid in a later period. That can be salary, a bonus, a buyout, or a severance package. In the sports context, as with Bonilla, it can be part of a player contract or a buyout of a player contract.

In a typical deferred compensation agreement, you agree to receive money later instead of now. From a tax perspective, for a deferral to work, you generally cannot have current access to the money. The payment must be actually deferred, which means you generally cannot have an unrestricted right to demand payment now. If the money is made available, the constructive receipt doctrine may pull the income into the current year, making it subject to tax immediately.

Many taxpayers are most familiar with tax-deferred compensation in the form of a qualified plan, such as a 401(k), pension, or profit-sharing plan. Those plans are “qualified” because they meet the tax code’s qualification rules, generally under section 401(a), and receive favorable tax treatment.

Nonqualified Deferred Compensation

Not all deferred compensation is created equal. When tax people talk about “nonqualified deferred compensation,” they usually mean deferred compensation outside of a qualified retirement plan. It’s often the kind of arrangement made with executives and athletes and includes buyouts, bonus deferrals, severance, or employer promises to pay later.

Qualified retirement plans are regulated to protect funds for the future. But in many nonqualified deferred compensation arrangements, the deferred amount is not sitting in a protected account. It may simply be an unsecured promise to pay in the future. If the employer later has financial trouble, you may have to stand in line with other creditors.

Why Timing Matters

Deferred compensation generally does not eliminate tax. It merely changes when the tax is due.

Instead of a single large payment in a year, you may receive a series of smaller payments over time. Since our federal income tax system is progressive, bunching income into one year may produce a different tax result than spreading it over many years.

In 2026, high earners can hit the top 37% federal income tax rate when taxable income rises above $640,600 for single filers and $768,700 for married filing jointly. You may also be subject to the 0.9% additional Medicare tax. That’s separate from the additional 3.8% Net Investment Income Tax (NIIT) which generally applies to investment income, not compensation. To the extent a deferred-payment arrangement includes taxable interest, as here with the interest payment due Bonilla, the NIIT would also be tacked on.

But, spaced out over time, you could drop into a lower tax bracket—say, 35% or 32%—or fall below the threshold for the 0.9% Additional Medicare Tax and the 3.8% NIIT, each of which kicks in at $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. A potential marginal-rate savings of several percentage points, spread over years of deferral, can really add up.

It can also matter because your circumstances may change. You may have less other income in later years because you’re no longer receiving a fixed salary. Federal income tax rates could move up or down. Or you may retire in a different state with lower income tax rates—or no income tax at all on wages (typically Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming).

The Employer Side

There is also an employer-side tax issue. Deferred compensation can preserve cash for the employer, but it may also delay the employer’s deduction. In many compensation arrangements, the employer’s deduction corresponds to the employee’s inclusion of the amount in income.

Enter Section 409A

There’s one more piece that employees and employers must consider. Bonilla’s Mets agreement was made in 2000—before section 409A. Section 409A was added by the American Jobs Creation Act of 2004, enacted on October 22, 2004, after the Enron-era deferred compensation scandals. Today, however, similar nonqualified deferred compensation arrangements would have to comply with Section 409A.

Section 409A generally applies when a service provider has a legally binding right to receive compensation in a later tax year. The statute focuses on how the deferral is made and when the money can be paid. If you don’t follow the rules, deferred amounts can become taxable earlier than expected. There are additional tax consequences, too, including a 20% additional tax (you can think of it as a penalty).

Under 409A, an arrangement generally has to specify the time and form of payment up front. It also restricts when payments can be made. The permitted payment triggers include separation from service, disability, death, a specified time or fixed schedule, a change in ownership or control, and an unforeseeable emergency. It also limits acceleration, meaning that you generally cannot say, “I was supposed to be paid in 2030, but I’d like the cash now.”

What You Need To Know

Bobby Bonilla Day sounds a little bit like a dream scenario (again, unless you’re a Mets fan). A player who last appeared for the Mets in 1999 still gets a seven-figure check from the team every July 1.

But Bonilla did not just stretch out the timing. The Mets agreed to pay him more money later with interest. That turned a $5.9 million buyout into a long-term payment stream worth about $29.8 million.

We can’t all be Bonilla, but there are some good lessons there. While many of us are fond of saying that we’d rather have a dollar today than a dollar tomorrow, there are instances where stretching out payments makes sense. Done correctly, a deferral can spread income—and tax—over years. If done incorrectly, it can trigger tax sooner than expected, potentially resulting in additional tax consequences.

Chances are, Bonilla worked with his professional advisors to set up his payments this way. Before you agree to any sort of deferred compensation, take a page from his playbook and do the same.

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