Your employer reported 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.
You will have to pay Social Security and Medicare taxes on the bonus, but only at the rate that you would have paid if it had been properly included in your W-2, not at the higher self-employment rate.
To report the bonus on your tax return, you enter the income as additional wages that were not reported on a W-2. The bonus will be reported on Form 1040 line 1g. Form 8919 will be included in your tax return, with reason code H in column (c). Form 8919 calculates the Social Security and Medicare taxes. The total of these taxes will appear on Schedule 2 line 6 and will be included in your total tax liability.
Here's how to enter the bonus in TurboTax.
- Go to Federal Taxes > Wages & Income.
- Click "I'll choose what I work on."
- On the screen "Your 2024 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 three screens ask about household employee wages, sick or disability pay, and Medicaid waiver payments. Click Continue on these three 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." Click Continue. Ignore the note that says not to enter payments for which you will receive a 1099.
- 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. For Total Wages Received, enter the amount of the bonus. Check the box that says "I received a Form 1099-MISC for this income." For the Reason Code select "H - I received a Form W-2 and a separate Form 1099-MISC and/or 1099-NEC and the income should have been reported on Form W-2." Click Continue.
- Read the next screen, "Report as Wages," and click Done.
