Signing Bonus & 1099-MISC


M

Matt Hall

For the past two summers I have worked as an intern at a
company. At the end of this summer, I was offered a full
time position for next fall (Fall '05) after I graduate from
college. As part of my compensation package, I was offered
a signing bonus of $7,500. The check stub for the signing
bonus lists the following information:

Sign-On Bonus Gross-Up: $7,500
Sign On Bonus Result Tax: $3,635.85
Total Gross: $11,135.85
Taxable Earnings: $11,135.85
TAX Withholding Tax Federal: $2,783.96-
TAX EE Social Security Tax Federal: $690.42-
TAX EE Medicare Tax Federal: $161.47-
Total EE tax: $3,635.85
Net Pay: $7,500
**** Special Information ****
RE Withholding Tax Federal $11,135.85
RE EE Social Security Tax Federal $11,135.85
RE EE Medicare Tax Federal $11,135.85

This check is dated 12/30/2004 and about a week ago I
received a 1099-MISC form from the company. The $7,500 is
listed in box #3 as "Other Income." However, box #4 for
"Federal income tax withheld" (as well as ALL of the other
boxes on the form) are listed as $0.00.

For starters, from the information contained on the check
stub, it appears as though the company withheld $3,635.85 in
taxes on the check. Maybe I'm misinterpreting the
information, but if this is the case, shouldn't that amount
be listed on the 1099-MISC in box #4 for "Federal income tax
withheld?"

Next, my signing bonus is contigent ONLY on me staying
employeed with the company for one year after my start date.
There are no performance considerations or anything like
that. If I stop working within one year, than I need to
repay the signing bonus. With this information, it would
seem, at least to me, that the signing bonus can be thought
of just as an additional $7,500 in income in addition to my
base salary (since it is contigent only upon me working for
them for a year). If this is the case, then why is this
compensation detailed on a 1099-MISC and not a normal W2
(which is how the compensation for my internships has been
detailed)? Can it be reported on a W2? Are there tax
benefits (for myself) to having it listed on a W2 instead of
a 1099-MISC?

Thanks a bunch.
-Matt
 
P

Phil Marti

Matt Hall said:
For the past two summers I have worked as an intern at a
company. At the end of this summer, I was offered a full
time position for next fall (Fall '05) after I graduate from
college. As part of my compensation package, I was offered
a signing bonus of $7,500. The check stub for the signing
bonus lists the following information:

Sign-On Bonus Gross-Up: $7,500
Sign On Bonus Result Tax: $3,635.85
Total Gross: $11,135.85
Taxable Earnings: $11,135.85
TAX Withholding Tax Federal: $2,783.96-
TAX EE Social Security Tax Federal: $690.42-
TAX EE Medicare Tax Federal: $161.47-
Total EE tax: $3,635.85
Net Pay: $7,500
**** Special Information ****
RE Withholding Tax Federal $11,135.85
RE EE Social Security Tax Federal $11,135.85
RE EE Medicare Tax Federal $11,135.85

This check is dated 12/30/2004 and about a week ago I
received a 1099-MISC form from the company. The $7,500 is
listed in box #3 as "Other Income."
Everything seemed to be going fine until something burped
out that 1099. This transaction belongs on your W-2, along
with your other earnings. The gross of $11,000 and change
should be reflected in box 1 of the W-2 and the $3,000+
income tax withheld in box 2.
 
Ad

Advertisements

H

Harlan Lunsford

Matt said:
For the past two summers I have worked as an intern at a
company. At the end of this summer, I was offered a full
time position for next fall (Fall '05) after I graduate from
college. As part of my compensation package, I was offered
a signing bonus of $7,500. The check stub for the signing
bonus lists the following information:

Sign-On Bonus Gross-Up: $7,500
Sign On Bonus Result Tax: $3,635.85
Total Gross: $11,135.85
Taxable Earnings: $11,135.85
TAX Withholding Tax Federal: $2,783.96-
TAX EE Social Security Tax Federal: $690.42-
TAX EE Medicare Tax Federal: $161.47-
Total EE tax: $3,635.85
Net Pay: $7,500
**** Special Information ****
RE Withholding Tax Federal $11,135.85
RE EE Social Security Tax Federal $11,135.85
RE EE Medicare Tax Federal $11,135.85

This check is dated 12/30/2004 and about a week ago I
received a 1099-MISC form from the company. The $7,500 is
listed in box #3 as "Other Income." However, box #4 for
"Federal income tax withheld" (as well as ALL of the other
boxes on the form) are listed as $0.00.

For starters, from the information contained on the check
stub, it appears as though the company withheld $3,635.85 in
taxes on the check. Maybe I'm misinterpreting the
information, but if this is the case, shouldn't that amount
be listed on the 1099-MISC in box #4 for "Federal income tax
withheld?"

Next, my signing bonus is contigent ONLY on me staying
employeed with the company for one year after my start date.
There are no performance considerations or anything like
that. If I stop working within one year, than I need to
repay the signing bonus. With this information, it would
seem, at least to me, that the signing bonus can be thought
of just as an additional $7,500 in income in addition to my
base salary (since it is contigent only upon me working for
them for a year). If this is the case, then why is this
compensation detailed on a 1099-MISC and not a normal W2
(which is how the compensation for my internships has been
detailed)? Can it be reported on a W2? Are there tax
benefits (for myself) to having it listed on a W2 instead of
a 1099-MISC?
SOMEbody, SOMEwhere, dropped the ball. From the
information on your check stub, it appears they did it right
to start with, but somewhere along the line, SOMEbody
figured it wasn't subject to tax. I think it is, and
therefore you should have gotten a W2 form with the 11,000$
plus as gross income.

Anybody agree with me?

ChEAr$,
Harlan Lunsford, EA n LA
 
B

Brad K CPA

Make a copy of the check stub and mail it back to the
company with a request for them to correct it and file an
amendment.
 
T

Thomas Healy

Matt Hall said:
For the past two summers I have worked as an intern at a
company. At the end of this summer, I was offered a full
time position for next fall (Fall '05) after I graduate from
college. As part of my compensation package, I was offered
a signing bonus of $7,500. The check stub for the signing
bonus lists the following information:

Sign-On Bonus Gross-Up: $7,500
Sign On Bonus Result Tax: $3,635.85
Total Gross: $11,135.85
Taxable Earnings: $11,135.85
TAX Withholding Tax Federal: $2,783.96-
TAX EE Social Security Tax Federal: $690.42-
TAX EE Medicare Tax Federal: $161.47-
Total EE tax: $3,635.85
Net Pay: $7,500
**** Special Information ****
RE Withholding Tax Federal $11,135.85
RE EE Social Security Tax Federal $11,135.85
RE EE Medicare Tax Federal $11,135.85

This check is dated 12/30/2004 and about a week ago I
received a 1099-MISC form from the company. The $7,500 is
listed in box #3 as "Other Income." However, box #4 for
"Federal income tax withheld" (as well as ALL of the other
boxes on the form) are listed as $0.00.

why is this
compensation detailed on a 1099-MISC and not a normal W2
(which is how the compensation for my internships has been
detailed)? Can it be reported on a W2? Are there tax
benefits (for myself) to having it listed on a W2 instead of
a 1099-MISC?
The company should have issued a W-2, not a 1099. Contact
their payroll department to get a corrected W-2 and a
corrected 1099 showing $0.
 
S

Shyster1040

SOMEbody, SOMEwhere, dropped the ball. From the
information on your check stub, it appears they did it right
to start with, but somewhere along the line, SOMEbody
figured it wasn't subject to tax. I think it is, and
therefore you should have gotten a W2 form with the 11,000$
plus as gross income.

Anybody agree with me?
Yah, since you're an employee, it should be W-2 wages.
Further, since they already grossed it up, it looks like
they're figuring a tax, taking it out of the gross amount
paid to you, but then keeping the cash for themselves.

If the deal was that you would get $7,500 net of taxes, then
what they're really doing is paying you a signing bonus of
the grossed-up amount which, after taxes are deducted and
withheld (and reported on a W-2 as such), will be equal to
$7,500.

You should call up the HR/Accounting department and get it
straightened out pronto.
 
D

D. Stussy

Harlan said:
Matt Hall wrote:
SOMEbody, SOMEwhere, dropped the ball. From the
information on your check stub, it appears they did it right
to start with, but somewhere along the line, SOMEbody
figured it wasn't subject to tax. I think it is, and
therefore you should have gotten a W2 form with the 11,000$
plus as gross income.

Anybody agree with me?
I am going to disagree with the consensus of a W-2 form, on
one simple basis:

What was the WORK that was actually performed? His
employment didn't actually start yet. In fact, if he
doesn't actually start employment upon graduation AND stay
for a year, then he will have to repay this amount (cf.
"claim of right"). I don't see the signing of the
employment contract as compensatable work under the
contract.

Without any work, there is no FICA requirement, and thus a
W-2 isn't required. A 1099-MISC would be correct in the
absence of a W-2 (since it's still a payment issued in the
course of business of the [future] employer). I would also
accept a W-2 that showed FICA (both SS and medicare) wages
as zero for this situation. Compensation for services
requires the [expectation that] services are performed.
There is not even the expectation during that year.

Had employment started in the same year as the signing
bonus, then a Form W-2 would be the correct way to report
this, and a 1099-MISC would be wrong.

[Aside: Compensation for an internship? Aren't
internships, by their nature, UNPAID?]
 
Ad

Advertisements

H

Harlan Lunsford

I am going to disagree with the consensus of a W-2 form, on
one simple basis:

What was the WORK that was actually performed? His
employment didn't actually start yet. In fact, if he
doesn't actually start employment upon graduation AND stay
for a year, then he will have to repay this amount (cf.
"claim of right"). I don't see the signing of the
employment contract as compensatable work under the
contract.
Actually I have to agree with you with the basic premise.
Any baseballer who signs with the Braves or other
worthwhile team hasn't hit a lick yet.
Without any work, there is no FICA requirement, and thus a
W-2 isn't required. A 1099-MISC would be correct in the
absence of a W-2 (since it's still a payment issued in the
course of business of the [future] employer). I would also
accept a W-2 that showed FICA (both SS and medicare) wages
as zero for this situation. Compensation for services
requires the [expectation that] services are performed.
There is not even the expectation during that year.
And therefore if it's properly on a 1099-misc, I'd better
NOT see it in "non employee compensation" block, but rather
up in block 3, agree?
Had employment started in the same year as the signing
bonus, then a Form W-2 would be the correct way to report
this, and a 1099-MISC would be wrong.
Darn it! Now you go back to the basic premise of a W2.
[Aside: Compensation for an internship? Aren't
internships, by their nature, UNPAID?]
WEll, in the case of one White House intern, she was
certainly paid under the table. Hmmm, let's see now,
deduct laundry expense?

ChEAr$,
Harlan Lunsford, EA n LA
 
D

Dick Adams

[Aside: Compensation for an internship? Aren't
internships, by their nature, UNPAID?]
I have never heard of an internship with the federal
government that was NOT unpaid. However, when I arranged an
internship for a student, they were always paid $9 to 12$
per hour with one exception. The exception was a woman
whose visa did not allow her to do any work for hire. It
was a complex situation. After she completed the internship
the employer sponsored her to get her visa changed.
 
S

Seth Breidbart

D. Stussy said:
I am going to disagree with the consensus of a W-2 form, on
one simple basis:

What was the WORK that was actually performed?
For a cash basis taxpayer, does it matter when the work is
actually performed?
His
employment didn't actually start yet. In fact, if he
doesn't actually start employment upon graduation AND stay
for a year, then he will have to repay this amount (cf.
"claim of right").
That would seem to be an argument for treating it as a loan
that gets forgiven on the first day of work.
Without any work, there is no FICA requirement, and thus a
W-2 isn't required. A 1099-MISC would be correct in the
absence of a W-2 (since it's still a payment issued in the
course of business of the [future] employer). I would also
accept a W-2 that showed FICA (both SS and medicare) wages
as zero for this situation. Compensation for services
requires the [expectation that] services are performed.
There is not even the expectation during that year.
But there is certainly that expectation.
[Aside: Compensation for an internship? Aren't
internships, by their nature, UNPAID?]
Not in general. (Ask any doctor, for instance.)

Seth
 
D

D. Stussy

For a cash basis taxpayer, does it matter when the work is
actually performed?
Although FICA taxes on back wages apply in the year the
wages are actually paid, that is because the work has
already been performed (in the earlier year). However, the
opposite isn't true. There has to be something: physical
labor, an exercise of discretion (usually a management
function), etc., for it to be considered "compensation for
services." If there's no service performed in the calendar
year, there is no attachment of FICA taxes.

"Cash basis" (or accounting method) only has relevance on
the income tax side.
That would seem to be an argument for treating it as a loan
that gets forgiven on the first day of work.
Without any work, there is no FICA requirement, and thus a
W-2 isn't required. A 1099-MISC would be correct in the
absence of a W-2 (since it's still a payment issued in the
course of business of the [future] employer). I would also
accept a W-2 that showed FICA (both SS and medicare) wages
as zero for this situation. Compensation for services
requires the [expectation that] services are performed.
There is not even the expectation during that year.
But there is certainly that expectation.
OK. Since his job doesn't start until AFTER the end of that
year, just what "service" was he expected to perform in
those three days between signing and receiving the signing
bonus check? What expectation are you talking about?
 
Ad

Advertisements

R

Rick Merrill

Matt said:
For the past two summers I have worked as an intern at a
company. At the end of this summer, I was offered a full
time position for next fall (Fall '05) after I graduate from
college. As part of my compensation package, I was offered
a signing bonus of $7,500. The check stub for the signing
bonus lists the following information:

Sign-On Bonus Gross-Up: $7,500
Sign On Bonus Result Tax: $3,635.85
Total Gross: $11,135.85
Taxable Earnings: $11,135.85
TAX Withholding Tax Federal: $2,783.96-
TAX EE Social Security Tax Federal: $690.42-
TAX EE Medicare Tax Federal: $161.47-
Total EE tax: $3,635.85
Net Pay: $7,500
**** Special Information ****
RE Withholding Tax Federal $11,135.85
RE EE Social Security Tax Federal $11,135.85
RE EE Medicare Tax Federal $11,135.85

This check is dated 12/30/2004 and about a week ago I
received a 1099-MISC form from the company. The $7,500 is
listed in box #3 as "Other Income." However, box #4 for
"Federal income tax withheld" (as well as ALL of the other
boxes on the form) are listed as $0.00.
Since it was not wages in the current year, they reported it
on a 1099. They paid the taxes, not you.
For starters, from the information contained on the check
stub, it appears as though the company withheld $3,635.85 in
taxes on the check.
That would have been true if your signing bonus was
11,135.85, but it was not.
Maybe I'm misinterpreting the
information, but if this is the case, shouldn't that amount
be listed on the 1099-MISC in box #4 for "Federal income tax
withheld?"
It sure is confusing, but no, they did not withhold it, they
just paid it. (Maybe they were confused)
Next, my signing bonus is contigent ONLY on me staying
employeed with the company for one year after my start date.
There are no performance considerations or anything like
that. If I stop working within one year, than I need to
repay the signing bonus.
Which was 7500, the rest is their problem.
With this information, it would
seem, at least to me, that the signing bonus can be thought
of just as an additional $7,500 in income in addition to my
base salary (since it is contigent only upon [my] working for
them for a year). If this is the case, then why is this
compensation detailed on a 1099-MISC and not a normal W2
(which is how the compensation for my internships has been
detailed)? Can it be reported on a W2? Are there tax
benefits (for myself) to having it listed on a W2 instead of
a 1099-MISC?
Ask them and maybe they will issue you a "corrected" 1099 or
(by that time) a W2;-)
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads

USA TaxAct and the 1099-MISC 0
USA 1099-Misc and FEIC 1
USA Repayment of sign on bonus 3
USA 1099-MISC and Form 2555 1
USA LLC Partnership and 1099-Misc 0
USA 1099 misc filed should have been 1099 int 2
USA 1099-Misc reimburse question 2
USA Misc 1099 Reporting 0

Top