Signing Bonus & 1099-MISC

Discussion in 'Tax' started by Matt Hall, Feb 9, 2005.

  1. Matt Hall

    Matt Hall Guest

    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
     
    Matt Hall, Feb 9, 2005
    #1
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  2. Matt Hall

    Phil Marti Guest

    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.
     
    Phil Marti, Feb 10, 2005
    #2
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  3. 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
     
    Harlan Lunsford, Feb 10, 2005
    #3
  4. Matt Hall

    Brad K CPA Guest

    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.
     
    Brad K CPA, Feb 10, 2005
    #4
  5. Matt Hall

    Thomas Healy Guest

    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.
     
    Thomas Healy, Feb 10, 2005
    #5
  6. Matt Hall

    Shyster1040 Guest

    SOMEbody, SOMEwhere, dropped the ball. From the
    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.
     
    Shyster1040, Feb 11, 2005
    #6
  7. Matt Hall

    D. Stussy Guest

    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?]
     
    D. Stussy, Feb 14, 2005
    #7
  8. I am going to disagree with the consensus of a W-2 form, on
    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.
    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?
    Darn it! Now you go back to the basic premise of a W2.
    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
     
    Harlan Lunsford, Feb 15, 2005
    #8
  9. Matt Hall

    Dick Adams Guest

    [Aside: Compensation for an internship? Aren't
    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.
     
    Dick Adams, Feb 15, 2005
    #9
  10. For a cash basis taxpayer, does it matter when the work is
    actually performed?
    That would seem to be an argument for treating it as a loan
    that gets forgiven on the first day of work.
    But there is certainly that expectation.
    Not in general. (Ask any doctor, for instance.)

    Seth
     
    Seth Breidbart, Feb 15, 2005
    #10
  11. Matt Hall

    D. Stussy Guest

    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.
    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?
     
    D. Stussy, Feb 21, 2005
    #11
  12. Matt Hall

    Rick Merrill Guest

    Since it was not wages in the current year, they reported it
    on a 1099. They paid the taxes, not you.
    That would have been true if your signing bonus was
    11,135.85, but it was not.
    It sure is confusing, but no, they did not withhold it, they
    just paid it. (Maybe they were confused)
    Which was 7500, the rest is their problem.
    Ask them and maybe they will issue you a "corrected" 1099 or
    (by that time) a W2;-)
     
    Rick Merrill, Feb 23, 2005
    #12
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