Should I get 1099 or W2 for bonus?

Question

I was working for company A until 31st December 2015. Another company B acquired a product from company A and also offered me a job. So from 1st Jan 2016 I started working for the company B.

I was also offered a stay bonus from company A if I stay with company B till 31st December 2016. (Note the bonus was offered by company A).

I am still working for company B. So as promised in 2017 January I received a bonus check from company A. Technically, I never worked for company A in 2016 or 2017.

So now when I am filing for my 2017 taxes, I guess need to pay taxes on the bonus I received from company A.

Should I be expecting W2 or 1099 or some other document from company A?

Update 1
I am not an employee of company A anymore.

Answer 1

The IRS says that Form W2 is just for employees. Form 1099 is for payments to those who are not employees.

The grey area for me is whether A thinks you're still an employee.

I'd say you should expect a 1099, but you should ask A to confirm.

Answer 2

I'll give the opposing viewpoint: that this ought to be on a Form W-2, one way or the other.

It really depends on how the stay bonus was handled by the original company. Since it was a part of your employment, though, I think it most likely ought to be reported on Form W-2; better yet it might have been better handled if Employer B had paid you the bonus from funds Employer A paid them, but no matter.

Certainly, if you'd received this bonus the day you separated from Company A, you'd have been owed a W-2, right? As such I'd argue that the IRS would suggest this deferral of said payment should not affect how it is treated from a tax point of view vis-a-vis employment or nonemployment compensation. It's a payment for doing your job, even if it's outside of the normal compensation framework.

Most of the documentation I see online refers to taxes being withheld, see for example this SEC example stay bonus which is for a company being acquired by another company (not identical to your situation, but fairly close) and refers to tax withholdings, though it does not clarify W2 vs 1099.

Other documents refer to this sort of thing as a deferred compensation plan, which is an interesting question; if it is essentially that sort of plan, then it's even more complicated since there's a whole bucket of rules related to that. For example, this article discusses the possibility of a stay bonus being treated as a non-qualified deferred compensation plan if it pays out more than 2.5 months after the company's tax year end in the year that it triggers; however, that assumes the bonus is paid to a still-current employee, I think. It's unclear whether that would apply here or not, since you were paid within that timeframe when considering the conditions being triggered (1 year stay) but outside of that when considering the term of your employment.

All in all, I think you probably will be issued a 1099, because companies like to use 1099 when they at all possibly can (avoiding paying employment taxes, and avoiding having to treat you as an employee in their systems), but there's an argument that you ought to be issued a W-2.

Answer 3

If you are considered an employee of company A then you will receive a W-2, if you aren't an employee you will be receive a 1099.

If they do send a W-2 I would think that they withheld taxes, social security and medicare from the original payment. If they promised you a bonus for $X and they sent you a check or made a deposit for $X then nothing was withheld. Therefore expect a 1099. If money was withheld then they have to send a W-2.

The only difference between the two in your situation is do you need to treat it as self employment income. I would think not because the source of the money isn't a line of income you will be continuing. But if the bonus is large or it is the first of several you will be receiving, it might be a good idea to check with a professional.