Taxes on sign-on bonus check

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wrongfunds
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Taxes on sign-on bonus check

Post by wrongfunds » Wed Jan 04, 2017 2:09 pm

My son accepted an offer via on-campus interview. They just sent him the sign-on bonus check without withholding any taxes. The check is dated Dec 20th but we just got it. I had told my son that he will NOT be getting full amount as nobody escapes death and taxes but I was proven wrong and the check was for the entire amount. I think the company will eventually send some tax related paperwork but should he be pestering them for it now? He will be on their payroll as an employee only after he finishes his degree later in the year (Aug 2017?).

For most of the companies, the sign-on bonus is usually paid when you actually start working for the company but apparently it must be different for offers given to students in their final years. This is their way of golden handshake.

random_walker_77
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Re: Taxes on sign-on bonus check

Post by random_walker_77 » Wed Jan 04, 2017 2:29 pm

That's a really interesting way to ensure that college students don't renege. Most students would spend some of it and have a hard time paying it back.

I'm guessing he's going to get a w2 or 1099 at the end of the month. This might actually work out better as presumably his taxable income for 2016 would be very low.

Not sure how much to trust this, but this is saying it should be a w2, and SS/medicare taxes are owed:
https://ttlc.intuit.com/questions/27754 ... earn-money

Other opinions here:
http://whitecoatinvestor.com/forums/top ... g-bonuses/

Rainmaker41
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Re: Taxes on sign-on bonus check

Post by Rainmaker41 » Wed Jan 04, 2017 3:20 pm

If it counts as 2016 earned income, tell him to open a Roth IRA.

mikep
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Re: Taxes on sign-on bonus check

Post by mikep » Wed Jan 04, 2017 3:25 pm

Make estimated tax payments by Jan 15 to avoid penalties (may be - depending on the amount) as well.

Gropes & Ray
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Re: Taxes on sign-on bonus check

Post by Gropes & Ray » Wed Jan 04, 2017 3:26 pm

They will probably send a 1099-m. They get until the end of January to do so, so I wouldn't hassle them now.

Is this a law school grad? The money is usually intended to help him study for the bar and get through the unemployment period from graduation until the job start date, which can be between September and January.

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Kenkat
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Re: Taxes on sign-on bonus check

Post by Kenkat » Wed Jan 04, 2017 3:28 pm

I received a bonus once from a company I worked at as a consultant at (not an employee). I was salaried at the consulting firm and a W-2 employee there.

I received a 1099 from the company I consulted at and filed a Schedule C, the downside of which is you pay both sides of FICA and Medicaid withholding. My guess is that may be what will happen with your son's signing bonus.

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wrongfunds
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Re: Taxes on sign-on bonus check

Post by wrongfunds » Wed Jan 04, 2017 5:13 pm

Son will be completing his usual 4-year college this summer; so no Law School or anything like that!

Since the check is dated December but most likely was mailed in January; would the income be considered for FY2016 or FY2017 ?

I am going to have very hard time convincing him that he will need to keep half of it for the taxes.

pshonore
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Re: Taxes on sign-on bonus check

Post by pshonore » Wed Jan 04, 2017 5:31 pm

wrongfunds wrote:Son will be completing his usual 4-year college this summer; so no Law School or anything like that!

Since the check is dated December but most likely was mailed in January; would the income be considered for FY2016 or FY2017 ?

I am going to have very hard time convincing him that he will need to keep half of it for the taxes.
Why half? He still gets a std deduction but no exemption assuming you're claiming him for 2016? SS/Medicare will be just under 15%. Of course he may owe state taxes as well.

NoGambleNoFuture
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Re: Taxes on sign-on bonus check

Post by NoGambleNoFuture » Wed Jan 04, 2017 5:40 pm

Two things as I work for a company that does this sometimes:

1) The bonus might be "grossed up". So, if he received a $20k net bonus, he might have actually received a $30,000 or so signing bonus. We'd sometimes say we'll give you a $20k net bonus, then obviously make it big enough to ensure the take home is $20k.

2) I'd be shocked if there wasn't some sort of claw back clause. I'm guessing in his offer letter it outlines the terms of the bonus which say something along the lines of if you voluntarily leave company XYZ before the 1 year anniversary of your start date, or you never start, you'll be required to repay the signing bonus in full... or something like that.

Billionaire
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Re: Taxes on sign-on bonus check

Post by Billionaire » Wed Jan 04, 2017 6:02 pm

wrongfunds wrote:Son will be completing his usual 4-year college this summer; so no Law School or anything like that!

Since the check is dated December but most likely was mailed in January; would the income be considered for FY2016 or FY2017 ?

I am going to have very hard time convincing him that he will need to keep half of it for the taxes.
The date on check determines the taxable year. He could also put a portion of it into a good old fashioned IRA and avoid taxes on all or a portion of it. Good luck convincing him of that. Good point about the standard deduction above. Depends on the amount.

jbmitt
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Re: Taxes on sign-on bonus check

Post by jbmitt » Wed Jan 04, 2017 7:17 pm

OP- has your son filled out all of his paperwork for them to withhold taxes?

amarone
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Re: Taxes on sign-on bonus check

Post by amarone » Wed Jan 04, 2017 10:46 pm

Billionaire wrote:The date on check determines the taxable year.
I do not think that is correct. It is certainly contrary to what our tax accountant told us. Look up "constructive receipt" on the IRS site.

Big Dog
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Re: Taxes on sign-on bonus check

Post by Big Dog » Wed Jan 04, 2017 10:55 pm

^^you are correct. If the check was not received until Jan, he can make the claim that any tax is not due until April-18.

But, it may not be worth the hassle, particularly if the company issues a 1099 dated in '16. He'd have to challenge the 1099 and jump thru a lot of hoops if the company would not issue a revised 1099.

I'd recommend putting the balance after taxes in a Roth.

Billionaire
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Re: Taxes on sign-on bonus check

Post by Billionaire » Fri Jan 06, 2017 12:36 pm

amarone wrote:
Billionaire wrote:The date on check determines the taxable year.
I do not think that is correct. It is certainly contrary to what our tax accountant told us. Look up "constructive receipt" on the IRS site.
Not sure what to say. I work in IT supporting HR and Payroll. If the check is dated 12/31/2016, it will be included on your 2016 W-2. If you happen to be one of the few people who still get a physical check and it's delivered on January 3rd, 2017, it's still 2016 taxable income.

TOJ
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Re: Taxes on sign-on bonus check

Post by TOJ » Fri Jan 06, 2017 12:47 pm

What happens if you get a spot bonus gift card in December but it doesn't show up on your pay stub as imputed income until January?

Quark
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Re: Taxes on sign-on bonus check

Post by Quark » Fri Jan 06, 2017 12:53 pm

He might ask the company what they plan to do about tax reporting.

billfromct
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Re: Taxes on sign-on bonus check

Post by billfromct » Fri Jan 06, 2017 1:45 pm

Did your son fill out a W4 form (tax withholding) with his new prospective employer?

I would guess not since he is not working for them yet.

I would also guess that he will probably receive a 2016 1099 misc form (as Gropes & May suggested) for his "sign on" bonus.

I think the 1099 misc form will have the $20k (or other amount) listed in box 3, other income. It's my understanding that the $20k would be taxable and listed in line 21, Other Income, of his 1040 Federal tax form when he files his 2016 taxes.

Self employment tax (SS & medicare, 15.3%) would only be required if he was an independent contractor working for his new perspective employer & got the $20k "sign on bonus" for that work. Normally independent contractor work is listed on the 1099 misc form in box 7, Non Employee Compensation.

Since it is not "earned income" (a sign on bonus), he cannot use that "other income" to qualify for a Roth or traditional tax deductible IRA. If he had other earned income, it would probably be a good idea to open a Roth IRA ($5.5k or his earned income which ever is lower) as Rainmaker suggested.

Of course all this is only speculation & your son will find out come early February when W2s & 1099 misc reporting forms should be received.

bill

Raryn
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Re: Taxes on sign-on bonus check

Post by Raryn » Fri Jan 06, 2017 1:50 pm

The other possibility is that the sign-on bonus isn't actually a bonus but a forgivable loan.

Some companies structure it that way so it isn't taxed at all in the year it's received. If you then leave the company before year X, you have to pay them back the "loan", but if you stay there long enough to justify your signing bonus, they write it off. You then pay taxes on it the year it was forgiven.

I know of at least one company hiring physicians where it might not be forgiven until years 5-7 for example.

amarone
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Re: Taxes on sign-on bonus check

Post by amarone » Fri Jan 06, 2017 3:43 pm

Billionaire wrote:
amarone wrote:
Billionaire wrote:The date on check determines the taxable year.
I do not think that is correct. It is certainly contrary to what our tax accountant told us. Look up "constructive receipt" on the IRS site.
Not sure what to say. I work in IT supporting HR and Payroll. If the check is dated 12/31/2016, it will be included on your 2016 W-2. If you happen to be one of the few people who still get a physical check and it's delivered on January 3rd, 2017, it's still 2016 taxable income.
That is okay as long as the employees getting a physical check are able to collect it on December 31. If it is available to them at the payroll office, for example, but you mail it instead because that is what they want, then the paycheck is last year's income because it is made available to the employee without restriction (which makes it "constructive receipt"). If, however, the company states that employees being paid by check must receive their check by mail, which will arrive in January, then that is this year's income because the employee does not have access to the money until this year.

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8foot7
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Re: Taxes on sign-on bonus check

Post by 8foot7 » Fri Jan 06, 2017 3:51 pm

Billionaire wrote:
amarone wrote:
Billionaire wrote:The date on check determines the taxable year.
I do not think that is correct. It is certainly contrary to what our tax accountant told us. Look up "constructive receipt" on the IRS site.
Not sure what to say. I work in IT supporting HR and Payroll. If the check is dated 12/31/2016, it will be included on your 2016 W-2. If you happen to be one of the few people who still get a physical check and it's delivered on January 3rd, 2017, it's still 2016 taxable income.
It depends on if you mail a check to an employee as a practice and the employee has no other option, or the employee had the option of getting the funds on 12/31 but voluntarily wanted a check mailed to him. If the former, then the funds are not available to the recipient until he or she receives the check which would absent a courier service be the next mail day, thus in the new year (2017 income). If the latter, then you're correct, it's 2016 income because the recipient had "constructive receipt" on the funds.

Just because your software and IT adds things up a certain way doesn't automatically make it congruent with tax law and policy.

ny_knicks
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Re: Taxes on sign-on bonus check

Post by ny_knicks » Fri Jan 06, 2017 4:18 pm

Graduating school in May and just received part of my sign-on bonus. Mine was incorporated into my relocation package and was "grossed up" so I received a check for the full amount stated in the offer letter. The gross up means the employer reimburses the employee for taxes owed on that income. I need to stay for a year or they clawback the bonus. I filled out paperwork to help them estimate the gross up and they will adjust it at the end of the year based on my income. I have read there are issues with how companies calculate the gross up and you can often still owe some taxes on it. The company waited until 2017 to pay the sign-on so all income at the company would all be in the same tax year.

Your son may have a similar structure for his sign-on but all of this should have been outlined in his offer letter/interactions with HR. I am certainly not a tax expert but I would bet a call to his HR contact would go a long way in clearing it up.

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Re: Taxes on sign-on bonus check

Post by afan » Fri Jan 06, 2017 5:41 pm

If your son is typical college student with little or no income for 2016 and starting a good job halfway through 2017, he will pay lower taxes if this can go on his 2016 return. I suppose if he is in a high tax state now and he will be in a zero state income tax place once he starts working it is POSSIBLE he might be better off paying the tax for his 2017 return. But not likely.
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NoGambleNoFuture
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Re: Taxes on sign-on bonus check

Post by NoGambleNoFuture » Fri Jan 06, 2017 5:52 pm

ny_knicks wrote:Graduating school in May and just received part of my sign-on bonus. Mine was incorporated into my relocation package and was "grossed up" so I received a check for the full amount stated in the offer letter. The gross up means the employer reimburses the employee for taxes owed on that income. I need to stay for a year or they clawback the bonus. I filled out paperwork to help them estimate the gross up and they will adjust it at the end of the year based on my income. I have read there are issues with how companies calculate the gross up and you can often still owe some taxes on it. The company waited until 2017 to pay the sign-on so all income at the company would all be in the same tax year.

Your son may have a similar structure for his sign-on but all of this should have been outlined in his offer letter/interactions with HR. I am certainly not a tax expert but I would bet a call to his HR contact would go a long way in clearing it up.
Swear I said something like this above: 1) The bonus might be "grossed up". So, if he received a $20k net bonus, he might have actually received a $30,000 or so signing bonus. We'd sometimes say we'll give you a $20k net bonus, then obviously make it big enough to ensure the take home is $20k.

2) I'd be shocked if there wasn't some sort of claw back clause. I'm guessing in his offer letter it outlines the terms of the bonus which say something along the lines of if you voluntarily leave company XYZ before the 1 year anniversary of your start date, or you never start, you'll be required to repay the signing bonus in full... or something like that.

:sharebeer

Billionaire
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Re: Taxes on sign-on bonus check

Post by Billionaire » Sat Jan 07, 2017 12:44 pm

8foot7 wrote:
Billionaire wrote:
amarone wrote:
Billionaire wrote:The date on check determines the taxable year.
I do not think that is correct. It is certainly contrary to what our tax accountant told us. Look up "constructive receipt" on the IRS site.
Not sure what to say. I work in IT supporting HR and Payroll. If the check is dated 12/31/2016, it will be included on your 2016 W-2. If you happen to be one of the few people who still get a physical check and it's delivered on January 3rd, 2017, it's still 2016 taxable income.
It depends on if you mail a check to an employee as a practice and the employee has no other option, or the employee had the option of getting the funds on 12/31 but voluntarily wanted a check mailed to him. If the former, then the funds are not available to the recipient until he or she receives the check which would absent a courier service be the next mail day, thus in the new year (2017 income). If the latter, then you're correct, it's 2016 income because the recipient had "constructive receipt" on the funds.

Just because your software and IT adds things up a certain way doesn't automatically make it congruent with tax law and policy.
We use SAP to process payroll, so it's not some obscure payroll package. In 15 years at this company, we've never had anybody make a issue of this. If somebody did, we'd tell 'em to take a hike.

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neurosphere
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Re: Taxes on sign-on bonus check

Post by neurosphere » Sat Jan 07, 2017 1:50 pm

Billionaire wrote: We use SAP to process payroll, so it's not some obscure payroll package. In 15 years at this company, we've never had anybody make a issue of this. If somebody did, we'd tell 'em to take a hike.
You are confusing tax law with company policy.

I have no special insight into the practical details of any of this, but can imagine the following scenario.

If an employee WANTED to make an issue of this, telling them to take a hike would probably not work. The taxpayer would simply tell the IRS that your firm refused to send a corrected W2 for 2016. Then the IRS would contact you and ask "did the taxpayer have the ability to get a physical check into their hands by Dec 31st"? If you say "no, we put the check in the mail on the 31st", then you would now also have to tell the IRS to take a hike. :D

So in the OPs case, the tax is clearly due for tax year 2017 regardless of any date on the check. Whether it's worth it to him to attempt to get a corrected 1099 or W2 is up to him. As already mentioned, it may end up to his advantage to "lie" and report the check as 2016 income anyway if he gets a 2016 tax documents.

NS

Billionaire
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Re: Taxes on sign-on bonus check

Post by Billionaire » Sat Jan 07, 2017 4:15 pm

neurosphere wrote:
Billionaire wrote: We use SAP to process payroll, so it's not some obscure payroll package. In 15 years at this company, we've never had anybody make a issue of this. If somebody did, we'd tell 'em to take a hike.
You are confusing tax law with company policy.

NS
No I'm not. I work for mega corp, we have to follow the tax law.

Perkunas
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Re: Taxes on sign-on bonus check

Post by Perkunas » Sat Jan 07, 2017 6:00 pm

wrongfunds wrote:I think the company will eventually send some tax related paperwork but should he be pestering them for it now?
The company has til the end of January to submit W2s so don't bother them now during the first week of new year.

If the check is dated 12/20/16 then it'll show up on a 2016 W2, which would indicate paying taxes for 2016.
Last edited by Perkunas on Sun Jan 29, 2017 10:45 am, edited 1 time in total.

inbox788
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Re: Taxes on sign-on bonus check

Post by inbox788 » Mon Jan 16, 2017 8:55 pm

If the check was written in December and the tax forms (1099) are for 2016, I wouldn't fight it, and in all likelihood, for the new employee, 2016 will be a lower income year anyway.
ny_knicks wrote:I filled out paperwork to help them estimate the gross up and they will adjust it at the end of the year based on my income. I have read there are issues with how companies calculate the gross up and you can often still owe some taxes on it. The company waited until 2017 to pay the sign-on so all income at the company would all be in the same tax year.
Did you submit your tax for as part of the process? You shouldn't pay any taxes if it was done correctly. Unless amounts are large, its probably not worth the hassle.

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celia
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Re: Taxes on sign-on bonus check

Post by celia » Mon Jan 16, 2017 9:58 pm

My kid signed with a company in the fall of the last year of grad school to start work the following summer. They sent the sign-on bonus in January (to be included with that year's salary) and did withholdings.

Holy cow, when the kid called and asked me why they withheld half of it, I thought a minute (without being able to see the check), then responded that the company had to withhold taxes as if you had earned that much each pay period. Then, I suggested that when you actually start work, you can go into payroll and decrease your withholdings for the rest of the year. You have effectively already paid a year's worth of income taxes for a job you won't start for 6 months.

ny_knicks
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Re: Taxes on sign-on bonus check

Post by ny_knicks » Tue Jan 17, 2017 11:14 pm

inbox788 wrote:Did you submit your tax for as part of the process? You shouldn't pay any taxes if it was done correctly. Unless amounts are large, its probably not worth the hassle.
I did fill out paperwork that helps them estimate the taxes for my sign-on as part of accepting the offer. I am able to adjust the information I entered after I start working this summer right up until the end of 2017. In theory the gross-up should cover the taxes I would pay but from what I have read online a lot of times it is close but not perfect. I am setting some of it aside just in case.

I am not the OP but it sounds like his son might not have filled anything out. I wonder if he ever followed up to find out if it was grossed up or not?

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Re: Taxes on sign-on bonus check

Post by Lafder » Wed Jan 18, 2017 8:56 am

The bonus check may or may not include taxes. Meaning your son may or may not need to pay his own taxes from that check. The check itself might not indicate if there were with holdings. Especially before he has gone all the way through the HR process. What does the offer letter say? It should say something like "taxes on this amount are the responsibility of the employee" or some other indication that they are paying above that amount in taxes. If the check is more than the promised bonus, it probably has the taxes included for your son to pay himself. If the check is the promised amount, it is less clear since taxes may be your son's responsibility, or they may be paid by the employer.

I got a sign on bonus at my first job with a 3 year employment commitment or I would need to pay it back. The person I interviewed with told me specifically that the nice thing about the bonus is they add the tax amount so you get to keep the actual amount promised.

Then I got the check and it was the amount of the bonus promised, not extra to cover taxes. After a few phone calls, the person who told me about them adding taxes was wrong. But she remembered telling me that and they compromised and increased the check, but not quite the full amount to cover taxes. A colleague who was hired after me was specifically told he had to pay his own taxes on the sign on bonus at his interview.

So my answer is that it depends.
lafder

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Watty
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Re: Taxes on sign-on bonus check

Post by Watty » Wed Jan 18, 2017 9:21 am

The check may be an interest free loan that will be forgiven after he completes six months or a year on the job.

What makes me suspect that is that it sounds like they didn't withhold any Social Security or Medicare from the check and they would always do that for taxable wages.

The reason it might be set up that way is that if he takes a job somewhere else and pays it back then unwinding the income taxes and the Social Security/Medicare contributions would be a mess both for him and the company.

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wrongfunds
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Re: Taxes on sign-on bonus check

Post by wrongfunds » Wed Mar 22, 2017 4:32 pm

He received the 1099-MISC and the amount is shown in box_7 as non-employee compensation. Obviously no taxes were withheld. I am assuming this income does NOT get the self-employment or contracting treatment i.e. no double social security tax to be paid by my son on this income.

I mean when the check was cut, he was NOT the employee NOR did he do any work for them. As a matter of fact, he is still NOT the employee or has done any work for them. May be I should ask him to contact the company and specifically ask them to send him corrected 1099 showing the amount in to different box such as box_3 "Other income"

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Re: Taxes on sign-on bonus check

Post by WallStreetPhysician » Wed Mar 22, 2017 8:04 pm

wrongfunds wrote:My son accepted an offer via on-campus interview. They just sent him the sign-on bonus check without withholding any taxes. The check is dated Dec 20th but we just got it. I had told my son that he will NOT be getting full amount as nobody escapes death and taxes but I was proven wrong and the check was for the entire amount. I think the company will eventually send some tax related paperwork but should he be pestering them for it now? He will be on their payroll as an employee only after he finishes his degree later in the year (Aug 2017?).

For most of the companies, the sign-on bonus is usually paid when you actually start working for the company but apparently it must be different for offers given to students in their final years. This is their way of golden handshake.
Lucky you - the investment bank I worked for took 40% off my signing bonus when I was hired during my senior year in college. Of course, i got a nice refund the next year. He will eventually need to pay the taxes when he files his taxes next year. I'm no tax expert (so correct me if I'm wrong), but since this is his first real job, he may not be on the hook for estimated taxes.

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wrongfunds
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Re: Taxes on sign-on bonus check

Post by wrongfunds » Thu Mar 23, 2017 11:34 am

I looked at the offer letter. It mentioned nothing about the taxes on the sign-on bonus. It did ask for W9 before cutting the check. My son has requested corrected 1099-MISC but assuming he does not get it, is there any way to eliminate the 15% straight social security/medicare tax on the bonus? Even if he were to deposit all in to traditional IRA (aka tax-deductible), I do not think there is any escape from the 15% as it is pretty much straight tax.

Please help!!

Here is the extract from the offer letter.
A. Signing Bonus Payment
The Company has agreed to pay you a one-time signing bonus of $3,000 ("Signing Bonus") that will be paid to you on or about December 30, 2016 in the event you (1) sign and return this offer letter to us on or before December 1, 2016 and (2) complete and return a W-9 to us at the same time. In the event you do not commence work with the Company as agreed herein, you understand that you will be obligated to repay the Signing Bonus to the Company in full within 30 days of written demand by the Company.
Last edited by wrongfunds on Thu Mar 23, 2017 11:43 am, edited 1 time in total.

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Re: Taxes on sign-on bonus check

Post by cadreamer2015 » Thu Mar 23, 2017 11:43 am

I'm not sure there is an easy way to avoid the SE tax on SE income. Perhaps signing the offer letter would be considered doing the work which was compensated by the sign-on bonus. You might look into setting up an i401k, which would allow contribution of $18k by the "employee" of the self-employed business and possibly some contribution from the "employer."
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wrongfunds
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Re: Taxes on sign-on bonus check

Post by wrongfunds » Thu Mar 23, 2017 11:47 am

We are talking about undergraduate college hire here! Setting up anything fancier than IRA seems to be out of question.

From the company's perspective, it should NOT matter to them to re-characterize the bonus because I do not believe their own tax obligation changes but it might be hard for the person who runs their financial systems.

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BrandonBogle
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Re: Taxes on sign-on bonus check

Post by BrandonBogle » Thu Mar 23, 2017 12:47 pm

Forgive me on not knowing the intricacies of the different between Non-Employee Compensation and Box 3 income on the 1099, but if you feel this should be Box 3 income, couldn't he file his taxes as if it were Box 3 and include a note about that? There have been times people disagreed with the 1099s and file with the correct value even without getting the 1099 corrected, but I do not recall if that is compensation or dividends or what.

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Re: Taxes on sign-on bonus check

Post by avalpert » Thu Mar 23, 2017 1:20 pm

wrongfunds wrote:He received the 1099-MISC and the amount is shown in box_7 as non-employee compensation. Obviously no taxes were withheld. I am assuming this income does NOT get the self-employment or contracting treatment i.e. no double social security tax to be paid by my son on this income.

I mean when the check was cut, he was NOT the employee NOR did he do any work for them. As a matter of fact, he is still NOT the employee or has done any work for them. May be I should ask him to contact the company and specifically ask them to send him corrected 1099 showing the amount in to different box such as box_3 "Other income"
The 1099 is correct. The bonus is non-employee compensation and you will have to pay self employment taxes on it. The alternative would be for them not to pay the bonus until he is on payroll and include it as part of his W2 income.

If he wants, he should be able to establish a SEP IRA and contribute to that but it won't avoid the self employment tax and may not be worth it if he didn't have much other income last year.

cadreamer2015
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Location: North County San Diego

Re: Taxes on sign-on bonus check

Post by cadreamer2015 » Thu Mar 23, 2017 3:40 pm

All this effort to avoid paying SE tax on $3,000? If the bonus were $30,000 it might be worth setting up an i401k, but not for $3,000. Just pay the $459.
De gustibus non est disputandum

Topic Author
wrongfunds
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Re: Taxes on sign-on bonus check

Post by wrongfunds » Thu Mar 30, 2017 9:52 am

Just to close this topic, as it turns out IRS does allow the amount in that box_7 to be NOT treated as self-employment income if it is one- time (sporadic) or some type of award. H&R software straightforwardly categorized this income as NOT self-employment income. So the kiddo did NOT end up with extra $459 of taxes!

Reference from: https://www.irs.gov/pub/irs-pdf/f1099msc.pdf page 5
If you are not an employee but the amount in this box is not SE income (for example, it is
income from a sporadic activity or a hobby), report it on Form 1040, line 21 (or Form
1040NR, line 21).

pshonore
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Joined: Sun Jun 28, 2009 2:21 pm

Re: Taxes on sign-on bonus check

Post by pshonore » Thu Mar 30, 2017 11:46 am

wrongfunds wrote:Just to close this topic, as it turns out IRS does allow the amount in that box_7 to be NOT treated as self-employment income if it is one- time (sporadic) or some type of award. H&R software straightforwardly categorized this income as NOT self-employment income. So the kiddo did NOT end up with extra $459 of taxes!

Reference from: https://www.irs.gov/pub/irs-pdf/f1099msc.pdf page 5
If you are not an employee but the amount in this box is not SE income (for example, it is
income from a sporadic activity or a hobby), report it on Form 1040, line 21 (or Form
1040NR, line 21).
There's a good chance he'll get a CP2000 letter from the IRS in the next 12-18 months asking why he did not pay SE tax when Box 7 is checked.

Topic Author
wrongfunds
Posts: 2307
Joined: Tue Dec 21, 2010 3:55 pm

Re: Taxes on sign-on bonus check

Post by wrongfunds » Thu Mar 30, 2017 6:31 pm

Because he was not a contractor nor did he do any work for the company nor was he acting in the capacity as an employee. I feel he is on solid ground. If he had not returned the acceptance letter within their time frame, he would have lost that money but the employment offer would have been still valid. I do not consider this money paid for the services rendered of any type.

If the IRS does not buy it, I will update this topic then.

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