How do I report my 2021 employee performance rewards?

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:

1. Open or continue your return.
2. Search for schedule c and click the Jump to link in the search results.
3. 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.
4. Follow the onscreen instructions.

 

Thank you for your reply. However, a schedule C is for self-employment or sole proprietors and I am neither. My employer provided me with cash performance rewards while on the job. It is nothing that I did outside of my workplace or on my own to start a business. Why do you suggest I file a schedule C and say yes to "Did you have any self-employment income or expenses? I did not have any self-employment income or expenses in 2021. This does not make sense. Please explain.

 

On the other hand, it does make sense that it is considered supplemental wages. That was my question as what to classify it as and you answered it.

 

Appreciatively.

Since the bonus came from your employer it represents compensation, which is taxable for income as well as social security tax purposes. However, you are not self-employed so technically are not subject to self-employment tax, even though it goes to social security just like if it was subtracted from wages.

 

You can report the income as wage income not reported on a W-2 form. You can do this in TurboTax by entering the bonus in the Wages and Income section, then Less Common Income, then Miscellaneous Income, 1099-A, 1099-C. Choose the category Other Income not already reported on a Form W-2 or Form 1099. This will result in the social security tax being added to your income tax, so you won't need to report the income as self-employment income.