My employer didnt tax bonuses & now ADP is all over me saying we have to do a "gross up". Ive always seen bonuses put in as gross in box 14 on a W2. Cant we just do that?

[mrscucch42]

My employer decided last minute to hand out Christmas bonuses last week.

Each employee received a check for the gross amount, say $200.00...

Now ADP is all over me as if we were trying to escape taxes somehow. I've always used box 14 "other" on a W2 for things like bonuses when I ran payroll in-house. 

Cant we just do it that way?

Or are we forced to do a "gross up" now and make the company pay all the taxes (you can kiss bonuses goodbye if that's the case)

[Lisa995]

Bonuses should be taxed and paid out the same as payroll.  You cant bypass payroll taxes by just giving the employees a "bonus" check.

[TaxGuyBill]

As SweetieJean said, it needs to be added to your wages.  Not adding it IS tax evasion.  Box 14 means nothing.

I'm confused why ADP you be after YOU if your employer gave out the W-2s.  Or are you preparing payroll for your employer?

[mrscucch42]

The employer wasnt trying to avoid taxes, just wanted to give a gift to their employees.  There must be a way to put it on the W2 where the company does pay the medicare and ss portion due from the bonus, and the employees have it added to their box 1 earnings as gross. They may get less of a return because the taxes are due on it, or it may not affect their return at all depending on how big the bonus is. Ive seen it put in box 14 over and over and over again without consequence, so now what?

[Lisa995]

Bonuses are fine, they just need to be taxed like any other payroll check.   Box 14 is NOT correct.

[TaxGuyBill]

"so now what?"

Unless you want to be involved in tax evasion, it NEEDS to be added to box 1, 3 and 5 of the W-2s.

[TaxGuyBill]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p15/ar02.html#en_US_2017_publink1000202313">https://www.irs.gov/pub...>

[mrscucch42]

Ok, so box 14 was used wrong for several companies Ive seen then....    ADP is all over me because I reported the bonuses to them today after the fact and didnt use their "quickcalc"to take taxes out. I had exactly 5 minutes pre-notice this was happening and we cut the bonus checks in-house.  The employer is not going to be very happy having to gross up these bonuses... I dont see why the employer cant pay the taxes due on their end to ADP and the employees will be taxed on them when their year end taxes are processes. The gross amount being added to box 1 without taxes being added to the other boxes from it. The IRS still gets their taxes off the amount that way dont they?        Ive also seen employers give out 1099Misc. for bonuses but we already know thats incorrect...  I just dont think this is such a big deal to fix and I dont think it has to all fall on the employer to pay these taxes now.

[Lisa995]

By only adding to Box 1, you're still cheating the SS/Mdcr taxes due.

[mrscucch42]

Ok TaxGuyBill... that is exactly what I want to do...  have ADP report the bonuses, have the company pay their share of the medicare and social security taxes on that amount.   No one is trying to avoid taxes here.   What I dont want to see happen is the employer have to pay 100% of both sides of the taxes now because of this.  So cant I have ADP report the bonus amount in box 1,3,5 and we give ADP the company's share of the taxes and the employees will have their share calculated when they do their returns?

[Lisa995]

The employees owe their share of the SS and Mdcr as well.    Are they going to give that back to the employer out of their bonus, or the employer pays it.

[mrscucch42]

Why wouldnt the employees share get caculated when they do their returns?  Ive had cases before when an employee short paid one tax or another for one reason or another and they either get a smaller return, or owe some money at the end of the year.

[Lisa995]

"Why wouldnt the employees share get caculated when they do their returns?"
That's INCOME taxes, not Social Security or Medicare Taxes.

[Opus 17]

Your employer needs to report the bonus as wages on form 941and include employment taxes.  That means for a $200 bonus, about $30.   Normally $15 would come from the employer and $15 from the employee.  So at this point you can withhold an extra $15 (7.65%) from each employee on their last check of the year and say "oops", or you could be generous and pay the whole 15% so aren't taking money away.  If you've already paid the last checks of the year you will either need to eat the employees' 7.65% share for 2016 and then make an adjustment in 2017 if you can.  

Separately you were also supposed to withhold federal and state income tax according to the standard formula, but I don't see why you would need to pay that for the employees too.   Just report the wages on the W-2.  You made a withholding mistake but I don't think it's unforgiveable.  

In the future, if you want the employee to net $200, ou would have to gross it up about 40% for state and federal taxes, whether you do that is up to you.  (I just got a bonus, my employer added it to my wages and we all pay taxes.  60% is better than nothing.)

[mrscucch42]

Thank you for your helpful response Opus and for not making me feel like a stinking criminal!  Obviously due to the unexpected timeline on this, the whole tax thing was an oversight. And apparently the other employers who did in-house payroll and put it in box 14 was wrong. Funny, we never got notice from the IRS all those years but ok.   Last payroll is this Friday, so we might be able to catch it.  I will contact my ADP rep and see what can be done. I certainly dont want the company paying the gross up amounts, they wont do another bonus if that happens.