Your employer is reporting the bonus incorrectly. All payments from an employer to an employee should be treated as wages and included in the employee's W-2. It doesn't matter whether it's regular pay or a bonus. However, there is a way to report the bonus correctly on your tax return, in spite of your employer's error.
I assume that your employer reported the bonus in box 7 of the Form 1099-MISC, and that you also received a Form W-2 for 2016 from the same employer.
Follow the steps below to enter the 1099-MISC in TurboTax. The bonus will be included in the total wages on Form 1040 line 7. On the dotted line to the left of the amount on line 7 there will be a notation "F8919" and the amount. Form 8919 will be included in the return, with reason code H in column (c). Form 8919 will calculate the Social Security and Medicare taxes that your employer should have withheld from the bonus. The total of these taxes will appear on Form 1040 line 58 and will be included in your total tax liability.
- Click the Federal Taxes tab. (In TurboTax Self-Employed or Home & Business click the Personal Tab.)
- Click Wages & Income. (In TurboTax Self-Employed or Home & Business click Personal Income.)
- Click "I'll choose what I work on" or "Jump to a full list."
- On the screen "Your 2016 Income Summary," scroll all the way down to the last section "Less Common Income." Click the Start button for the last topic, "Miscellaneous Income, 1099-A, 1099-C."
- On the next screen click the Start button for "Other income not already reported on a Form W-2 or Form 1099."
- The next screen asks "Did you receive any other wages?" Select Yes and click Continue.
- The next two screens ask about household employee wages and sick or disability pay. Click Continue on these two screens without entering anything.
- The next screen asks "Did you earn any other wages? Select Yes and click Continue.
- The next screen asks the source of the other earned income. Select "Employee compensation that was not reported on a W-2." Ignore the note that says not to enter compensation for which you will receive a 1099. Click Continue.
- On the next screen, "Employee Compensation Not Reported on a W-2," click Continue.
- If you are filing a joint return, you will get a screen asking which one of you the income is for. Select your name and click Continue.
- On the next screen, "Report Your Wage Income," enter the employer's name and EIN from your W-2. When entering the EIN, you must enter the hyphen after the first two digits. For Total Wages Received, enter the amount on the 1099-MISC. Select Reason Code H. Click Continue.
- On the next screen, "Report as Wages," click Done.
- This returns you to the Miscellaneous Income screen. Click Continue.
