Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

For meeting some personal goals my boss gave me a promised $20K check.

This check is not a part of the company payroll.

I assume it's too large to just deposit it and forget about it with out the IRS coming knocking so I guess I have to pay taxes on it.

I guess the first question is do I have to pay taxes and if so how does one go about that?

Would it be better to declare it as income for 2012 or 2013?

Thanks.

share|improve this question
4  
You shouldn't just deposit it and forget it regardless of the amount. That is, if you are interested in not cheating on your taxes. –  JohnFx Dec 21 '12 at 19:40
3  
Just to be clear, you don't have to pay income tax on a gift. But this isn't a gift. As far as the IRS is concerned, any payment from employer to employee is wages, no matter the reason or explanation. –  Jeremy Stein Dec 26 '12 at 20:45

4 Answers 4

I actually think your boss is creating a problem for you.

Of course it's taxable. The things IRS will look at (and they very well might, as it does stand out) what kind of payment is that.

Why did it not go through payroll? The company may be at risk here for avoiding FICA/FUTA/workers' compensation insurance/State payroll taxes. Some are mandatory, and cannot be left to the employee to pay.

On your side it raises your taxable income without the appropriate withholding, you may end up paying underpayment penalties for that (that is why you've been suggested to keep proofs of when you were paid).

Also, it's employment income. If it is not wages - you're liable for self-employment taxes (basically the portion of FICA that the employer didn't pay, and your own FICA withholding).

When you deposit the check is of no matter to the IRS, its when you got it that determines when you should declare the income. You don't have a choice there.

I suggest asking the company payroll why it didn't go through them, as it may be a problem for you later on.

share|improve this answer
    
It was based on reaching a goal which we did. –  Tom Dec 21 '12 at 21:36
3  
@Tom, that just raises more questions. Your boss gave you a 20K personal check for your work? Why? That just doesn't sound right, something is terribly wrong in the situation you're describing. –  littleadv Dec 21 '12 at 21:41
2  
@Tom if its incentive - it is not a gift. Gifts by definition must be unconditional (with regards to taxes, at least). Based on what you've described, this is a straight-forward bonus, it should have come through your payroll, and for whatever reason that it didn't - it will bite you as well as your boss and your employer. –  littleadv Dec 22 '12 at 0:49
1  
@Tom also, from what you've described it sounds like a personal initiative and personal money. I'm sure your employer will not like this story once it gets to them. I can think of at least several potential liabilities for the company stemming out of this, and I'm not a lawyer. –  littleadv Dec 22 '12 at 0:50
1  
The question really is what is meant by "my boss". Is the boss who paid out the money the sole owner of the company that employs the OP (since company payroll is mentioned) or just a mid-level (or senior) manager who is also an employee (but not a owner) of said company? –  Dilip Sarwate Dec 22 '12 at 23:45

Yes, it's taxable. If anyone suggests it's a gift, they are mistaken. There's a line on the 1040 for "other" and as long as you claim it, you're fine with the IRS. It's 2012 income as you already got it.

Edit - mhoran makes two good points I'm not really able to address. (a) does a late bonus such as this effect one's penalty? (b) since it skipped payroll, will there be an issue by not having FICA withheld?

share|improve this answer
1  
The OP should make a copy of the check before depositing it, and store it with the rest of their tax documents. –  mhoran_psprep Dec 21 '12 at 19:54
    
@mhoran_psprep - curious as to why? Wouldn't a bank statement work? Is it to prove the filer doesn't under-report? Sounds like a good point either way. –  MrChrister Dec 21 '12 at 20:10
4  
I like having a copy of the check as the ultimate reference. It makes it clear that it wasn't a corporate check, and that it came late in the year so the you won't get hit with underpayment penalty, and that FICA wasn't supposed to be applied. –  mhoran_psprep Dec 21 '12 at 20:54
    
@mhoran_psprep: But banks usually provide a copy of the voided check in bank statements.. at least mine does –  staticx Aug 5 at 10:57

As others have mentioned yes it is taxable. Whether it goes through payroll and has FICA taken out is your issue in terms that you need to report it and you will an extra 7.5% self employment taxes that would normally be covered by your employer. Your employer may have problems but that isn't your issue.

Contrary to what other users are saying chances are there won't be any penalties for you. Best case you have already paid 100% of last years tax liability and you can file your normal tax return with no issues.

Worst case you need to pay quarterly taxes on that amount in the current quarter. IRS quarters are a little weird but I think you need to pay by Jan 15th for a December payment. You don't have to calculate your entire liability you can just fill out the very short form and attach a check for about what you will owe. There is a form you can fill out to show what quarter you received the money and you paid in it is a bit more complex but will avoid the penalty. For penalties quarterly taxes count in the quarter received where as payroll deductions count as if they were paid in the first quarter of the year.

From the IRS

The United States income tax is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during the year. You can either do this through withholding or by making estimated tax payments. If you do not pay your tax through withholding, or do not pay enough tax that way, you might also have to pay estimated taxes. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

share|improve this answer

If you are in the US and a regular employee, this will have to show up on your year-end W2 form as income. If it doesn't, there is some funky accounting business going and you should probably consult a professional for advice.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.