My employer recently shut down.Before closing, they gave me a bonus check for $5000. I received a 1099-Misc for this bonus. It was not reported on W-2. Where do I file?

[eidcolette]

Received 1099-Misc for bonus instead of it being listed on my W-2. Why do employers do this and is it legal?  Where should I file this income? If I file it under 1099-Misc I am paying more in taxes, however if I file it as other income, I am not taxed as much.   I would like to ensure I file the legal way.

[LenaH]

If bonuses are reported on a 1099-MISC in Box 3, then you will still need to pay the uncollected Social Security and Medicare tax, as well as the income tax. This could be why it is populating under your Schedule C and adding self-employment tax (which will end up being your portion of the Social Security and Medicare on this income). 

The IRS classifies 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, bonuses 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. 

[rjs]

Employers do this either out of ignorance or to avoid paying their share of the Social Security, Medicare, and other payroll taxes. It's not legal, but it happens all the time.

You enter the income as additional wages that were not reported on a W-2. You will have to pay the Social Security and Medicare taxes that the employer should have withheld from the bonus. This will be the same amount that would have been withheld if your employer had handled it correctly and included the bonus in your W-2.

The payments will be included in the total wages on Form 1040 line 1. On the dotted line to the left of the amount on line 1 there will be a notation "F8919" and the amount. Form 8919 will be included in your return, with reason code H in column (c). Form 8919 will calculate 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.

Follow these steps to enter the bonus. The first few steps might vary a bit in TurboTax Online, depending on what you have already done.

• On the left side click Federal.
• Click Wages & Income.
• Click "I'll choose what I work on" or "Jump to a full list."
• On the screen "Your 2021 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." Click Continue. Ignore the note that says not to enter payments for which you will receive a 1099. Later you will check a box that says you received a 1099-MISC.
• 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. 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.