All Bonuses given to Employees should be treated as wages and withhold from them Federal Income Tax, FICA, FUTA and any applicable state payroll taxes.
If the Bonus was paid separately from the regular wage (or identified as separate from the wages) and Federal Income Tax was already withheld from the regular wages, you can use the supplimental withholding rate of 25% for the bonus (or 39.6% if suplimental wages are more than $1 million)
For the bonus to be excluded from overtime pay, the employer should be the one who decides when and how much to give. Bonuses CANNOT be required by a contract, agreement, or promise, it has to be a complete SURPRISE to the employee.
Exception: A holiday bonus can be discretionary even if it is given each year.
This type of bonus is required by a contract, agreement, or promise. Example: for faster production, for meeting the deadlines, meeting the sales limits, etc.
Nondiscretioanary bonuses when given to Hourly Employees- have to be included in the weekly gross pay for the week in which these bonuses are earned, and these bonuses have to be included when computing the overtime.
Ana's pay is $15/hour. One week she works 42 hours and also is entitles to a $50 Bonus
Ana's normal Pay for the week is: $15/hour * 42 hours = $630.00 + $50.00 Bonus = $680.00 normal pay
Calculation of overtime pay: $680.00 / 42 hours = $16.19/hour * 50% (OT Rate) = $8.10/hour (OT Rate) * 2 Hours Overtime = $16.20 overtime pay
Ana's Gross Pay for the week: $680.00 (normal pay) + $16.20 (overtime pay) = $696.20 total for the week.
Cash Prizes and Awards
Include the Fair Market Price of the Prize or Award (NOT the cost) in the wages and withhold all applicable payroll taxes. Subject to Overtime Pay (as in Ana's example above)
Length of Service Awards:
To be excluded from federal taxable wages thes awards have to:
be given under a written plan or program that does not favor highly compensated employees
not exceed an average of $400 per employee (or $1,600 per employee of the year)
not be tangible personal property, cash or cash equivalents (e.g. stocks, bonds, meals, etc.)
have to be given in some kind of ceremony
length pf service awards are federal taxable wages if given before 5 years of service, BUT non-taxable if given after 5 years of service and NOT more frequently than every 5 years
These awards have to be included in federal taxable wages if not also given to management, professional, clerical or part-time eployees. The Safety Awards have to be given to no more than 10% of eligible employees to be non-taxable. If for example, 12% of employees qualify for the safety award, than this award cannot be given tax-free to any of the employees.
Include the Fare Value Market in wages subject to all federal payroll taxes.
Fruit baskets, hams, turkeys, wine, flowers, entertainment tickets to a show, game (but NOT the season tickets). These have to be of a nominal value and given infrequently.
Gift certificates (treated as cash) are treated as wages and subject to all payroll taxes.
A gift certificate for a turkey is taxable, a turkey is not.
Parties and Picnics:
The cost of a party for employees is 100% deductible to the business and non-taxable to employees.