If you have paid a bonus to employees sometime during the tax year, you may wonder: Are bonuses included in W2 filings? In short: Yes. An employer should report bonuses paid to an employee in box 1 of a W2. However, this can get a little complicated. The following guide will walk you through the bonus reporting process. And, if you need help completing W2s, 1099s, or any other tax and wage form, remember that AMS has powerful tools to support.
How Are Bonuses Included in W2 Filings?
According to the IRS, bonuses are a form of compensation. As a result, bonuses are subject to the same taxation as an employee’s salary or other wages. Employers withhold a certain amount of bonuses for social security, Medicare, and other income tax withholdings as they do with regular wages.
Since the IRS treats bonuses as a supplemental wages, employers must report any bonus amount together with the employee’s annual wages. To do this, employers total the amount of bonus wages, calculating the value of any bonuses that are not direct wages, like vacations. They then report an employee’s total wages and supplemental wages in box one of the W2.
Regular wages are subject to federal withholding at a flat rate of 22%, as are bonuses included in W2. Employers can choose to use the aggregate method instead of the 22%. The aggregate method involves subtracting the amount withheld from just an employee’s normal wages from the amount withheld of their combined normal and supplemental wages. Either way, employers take some amount from a bonus.
Because the IRS categorizes bonuses as wages, these payments can adjust someone’s tax bracket or change any deductions they might have previously qualified for. Employers and employees alike should pay close attention to how bonuses appear on tax filings.
Can You 1099 an Employee for a Bonus?
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In short, you cannot use a 1099 to report an employee’s or contractor’s bonus. The IRS considers all bonuses as general income, which employers must report on the employee’s W2 form. You can read more about 1099s and bonuses here. You can also visit the information guide the IRS provides on bonuses and other related items covered in their publication.
If a business gives a bonus to a contracted worker, that business will need to include that bonus in the total amount paid to the contractor on their 1099 form. This would be an occasion for reporting a bonus on a 1099, but only if the total amount paid (including any bonuses) to the contractor exceeds $600.
How AMS Products Can Help
If you utilize a combination of hired employee work and contracted work, you will need a system that handles both W2 and 1099s forms. AMS has that solution in our AMS W2/1099 Software Filer. Our products give you the flexibility of being able to generate and complete both W2 and 1099 forms as you need them. You can keep all your employee files organized and complete all your forms on time. Take our products for a test-run with a free downloadable demo to see how our systems can work for you.