You would file these cash performance rewards on a Schedule C. You will still need to pay the uncollected Social Security and Medicare tax, as well as the income tax, as these rewards.
The IRS classifies rewards and bonuses as supplemental wages, along with severance pay, taxable fringe benefits, vacation pay, back pay, and overtime. Supplemental pay is anything other than your regular pay.
Typically, rewards are added to a W-2. However, there are different withholding methods for supplemental wages that the employer can consider, which are discussed in IRS Publication 15.
Per the IRS, regardless of the method employers use to withhold income tax on supplemental wages, supplemental wages are subject to Social Security and Medicare taxes.
To set up your Schedule C:
- Open or continue your return.
- Search for schedule c and click the Jump to link in the search results.
- Answer Yes to Did you have any self-employment income or expenses?
- If you've already entered self-employment work and need to enter more, select Add another line of work.
- Follow the onscreen instructions.
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