Bonus Payments

Bonus payments to employees are additional wages subject to employment taxes. Employers are responsible for withholding and paying both the employer portion and employee portion of social security and Medicare taxes in addition to federal income taxes. If there is no question about the worker’s classification and the worker is identified as an employee, bonus payments should be issued through payroll in the same manner as regular wage payments.

It’s important to understand processing any employee payments through AP will result in the issuance of Form 1099 and the worker is responsible for paying applicable income taxes on those payments. According to IRS guidelines, it is possible to classify a worker as a W-2 employee and a 1099 independent contractor if the individual performs completely different duties that would qualify them as an independent contractor. In this unusual circumstance, a worker can receive Form W-2 and Form 1099 in the same year. However, this is typically a red flag for the IRS prompting the agency to seek further information to justify the employer’s failure to withhold payroll taxes. Please reference the following links from the IRS for additional guidance:

https://www.irs.gov/government-entities/form-w-2-and-form-1099-misc-filed-for-the-same-year

https://www.irs.gov/government-entities/federal-state-local-governments/when-would-i-provide-a-form-w-2-and-a-form-1099-to-the-same-person

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee