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Message
Employer paid bonus with 1099 and didn't withhold tax - what to do?
Posted on 12/31/20 at 10:38 am
Posted on 12/31/20 at 10:38 am
I am an employee and get a W-2 from my employer. This year, I earned a year-end bonus that is roughly 25% of my salary. I asked my employer to NOT direct deposit this bonus as it would mess up my accounting in Quicken to have such a large transaction show up (just me being a nerd, I guess). I would rather just get a check and deposit it into a separate Brokerage account. So, my employer sent me a check with no taxes withheld and said I would be getting a 1099 for this bonus like I was a contractor.
I think I know how to handle the separate income in TurboTax, but I'm concerned that I should be paying some sort of estimated taxes on this amount between now and tax-time.
Looking back, it would have been simpler if they just did the direct deposit and this bonus showed up on my W-2.
I'd appreciate any thoughts/advice on how I should handle the taxes for this bonus. I don't want to get penalized for under-withholding when I just received the check today and my employer is the one who didn't withhold anything. Thanks!
I think I know how to handle the separate income in TurboTax, but I'm concerned that I should be paying some sort of estimated taxes on this amount between now and tax-time.
Looking back, it would have been simpler if they just did the direct deposit and this bonus showed up on my W-2.
I'd appreciate any thoughts/advice on how I should handle the taxes for this bonus. I don't want to get penalized for under-withholding when I just received the check today and my employer is the one who didn't withhold anything. Thanks!
7
Posted on 12/31/20 at 10:48 am to Bacchus
quote:
but I'm concerned that I should be paying some sort of estimated taxes on this amount between now and tax-time.
PDF, refer to flowchart on top of page 22
ETA- these are the IRS rules, and they are pretty easy to understand , but each rule has caveats. The text below explains it (and even sort of adds a scenario- if you paid 100% of 2019 taxes, then you are fine).
So, if you have never owed at the end of the year before and have withheld similarly from last year to this year, you are welcome to pay them their money now. You shouldn’t be penalized if this is the first time you have come into this scenario in almost any circumstance (you would have had to make a lot more the year before, then make a lot less/withhold less this year, and then have this “bomb” at the end of the year, but that isn’t a likely scenario and I’m fairly sure if you read all the fine print, there is sort of a way around that, too with income fluctuations having some scenarios attached to them. I seem to remember learning they did, but they have not ever really applied to me (fortunately), so I admittedly never familiarized myself with them).
This post was edited on 12/31/20 at 10:55 am
Posted on 12/31/20 at 11:06 am to Bacchus
quote:
I asked my employer to NOT direct deposit this bonus as it would mess up my accounting in Quicken to have such a large transaction show up (just me being a nerd,
This really makes no sense. It's imcome.
Posted on 12/31/20 at 11:09 am to VABuckeye
quote:
This really makes no sense. It's imcome.
And quicken will super easily let you classify it as such.
Posted on 12/31/20 at 11:24 am to Hopeful Doc
Agreed - I'm not saying it's difficult to classify as a bonus in Quicken. I just didn't want the bonus to hit my checking account and make all of my metrics look all wonky because of it, especially I have no plans to keep the money in checking. I figured if I was putting the money into a brokerage account anyway, why not just get the money in a check, keep it outside of my checking account and all my tracking, and just deposit it straight into the destination account. I'm not saying I couldn't figure out how to do that - it was just a preference to make everything cleaner, but this tax situation makes me wish I had just kept it as normal income on my W-2.
Posted on 12/31/20 at 11:26 am to Hopeful Doc
quote:
quote:
but I'm concerned that I should be paying some sort of estimated taxes on this amount between now and tax-time.
PDF, refer to flowchart on top of page 22
Thank you, Doc. It sounds like it should be fine as long as I pay the gov't by Jan 15 what I expected my employer to withhold.
Posted on 12/31/20 at 1:07 pm to Bacchus
So they're going to issue both a W2 and 1099 in the same tax year to your SSN? I hope they're prepared for their upcoming audit.
ETA: Do you realize that you're now going to have to pay the employer's half of FICA on this bonus, in addition to your own? I would get them to correct this if they still can.
ETA: Do you realize that you're now going to have to pay the employer's half of FICA on this bonus, in addition to your own? I would get them to correct this if they still can.
This post was edited on 12/31/20 at 1:20 pm
Posted on 12/31/20 at 2:12 pm to Bacchus
quote:
said I would be getting a 1099 for this bonus like I was a contractor.
Yeah that doesn’t sound right
Posted on 12/31/20 at 2:15 pm to Brummy
quote:
they're going to issue both a W2 and 1099 in the same tax year to your SSN? I hope they're prepared for their upcoming audit.
ETA: Do you realize that you're now going to have to pay the employer's half of FICA on this bonus, in addition to your own? I would get them to correct this if they still can.
Well technically if he’s treating it like a contractor, he’s probably going to get the QBI deduction so would probably work out for him.
Besides the fact that the IRS would definitely fight him being a “contractor” and they’d likely win.
Posted on 12/31/20 at 2:37 pm to Bacchus
It’s likely a screw up on their end OP, I’m not an accountant but I’d ask them before depositing it. You usually don’t 1099 and W-2 someone on purpose unless it was 2 different positions at different times. But that advice isn’t worth much so ask a pro.
Posted on 12/31/20 at 4:14 pm to Bacchus
Your employer made a mistake. All you were asking for (I think) was a live check, not a DD. Some companies don't do live checks, they require DD, and if that's the case, they should have told you as such (and you would have had to deal with it and deal with Quicken).
How big a company do you work for, and how good terms are you with them? What they need to do is take the check back, run it through payroll, and then give you a live payroll check (or DD it and you just deal with that).
You might qualify under prior year exception from having to make a Q4 estimate (due Jan 15) but you will have a tax bill (including s/e tax) come April 15, if you don't get this fixed.
How big a company do you work for, and how good terms are you with them? What they need to do is take the check back, run it through payroll, and then give you a live payroll check (or DD it and you just deal with that).
You might qualify under prior year exception from having to make a Q4 estimate (due Jan 15) but you will have a tax bill (including s/e tax) come April 15, if you don't get this fixed.
Posted on 12/31/20 at 8:38 pm to Brummy
quote:
ETA: Do you realize that you're now going to have to pay the employer's half of FICA on this bonus, in addition to your own? I would get them to correct this if they still can.
This
Posted on 12/31/20 at 10:43 pm to Brummy
quote:
So they're going to issue both a W2 and 1099 in the same tax year to your SSN? I hope they're prepared for their upcoming audit.
ETA: Do you realize that you're now going to have to pay the employer's half of FICA on this bonus, in addition to your own? I would get them to correct this if they still can.
Correct on both counts.
Your employer is going to have a not so cheap lesson from the IRS.
Posted on 1/1/21 at 9:11 am to Bacchus
In addition to completing your 1040 you will need to complete a schedule SE and Schedule C. I have had this happen to me before at a previous company.
Posted on 1/1/21 at 12:31 pm to LSUFanHouston
Must be on really good terms to be such a PITA for the sake of personal finances.
Posted on 1/1/21 at 12:43 pm to whatshisface
I've had the unfortunate task of having to oversee payroll before, and while mistakes do happen from time to time, this one is completely unacceptable. It's pretty basic knowledge you can't 1099 a W2 employee; the fact that they don't understand this makes me wonder what else they are fricking up. If I am OP I am getting this corrected ASAP. If I have to stand over their shoulder until they get it right - fine. Then, I'm going over my W2 with a fine-tooth comb when I finally get in January.
Posted on 1/2/21 at 10:13 am to baldona
quote:
It’s likely a screw up on their end OP, I’m not an accountant but I’d ask them before depositing it. You usually don’t 1099 and W-2 someone on purpose unless it was 2 different positions at different times. But that advice isn’t worth much so ask a pro.
It's a small family company that uses another firm to handle payroll, so technically my W-2 comes from this payroll company. The 1099 I'll get will come from the company I actually work for. So I guess it will look like I work for the payroll company but did some side work for my actual company.
Posted on 1/2/21 at 10:18 am to whatshisface
quote:
Must be on really good terms to be such a PITA for the sake of personal finances.
It's a small family-owned business and I work directly for the owner, so yes, good terms. They use a third-party to handle payroll and benefits, so technically my W-2 comes from this other firm. All I was asking for with this bonus was to get a check instead of a direct deposit. They already do this for travel reimbursements, so I didn't think it was that big of a deal, until they didn't take taxes out.
Posted on 1/2/21 at 2:08 pm to Bacchus
quote:
Agreed - I'm not saying it's difficult to classify as a bonus in Quicken. I just didn't want the bonus to hit my checking account and make all of my metrics look all wonky because of it, especially I have no plans to keep the money in checking. I figured if I was putting the money into a brokerage account anyway, why not just get the money in a check, keep it outside of my checking account and all my tracking, and just deposit it straight into the destination account. I'm not saying I couldn't figure out how to do that - it was just a preference to make everything cleaner, but this tax situation makes me wish I had just kept it as normal income on my W-2.
what metrics would be wonky in quicken? You can exclude the Bonus category from reports where you want to see your true paycheck, average pay, etc. By depositing it straight into your brokerage account you can't categorize it as a Bonus which then could be used in the Tax Planner to estimate the taxes you owe, among other things.
Posted on 1/2/21 at 6:01 pm to whiskey over ice
quote:
what metrics would be wonky in quicken? You can exclude the Bonus category from reports where you want to see your true paycheck, average pay, etc. By depositing it straight into your brokerage account you can't categorize it as a Bonus which then could be used in the Tax Planner to estimate the taxes you owe, among other things.
I did receive other bonuses throughout the year, so I include those in my Quicken reports. This was more of a personal preference to just get a check and put it directly into the account I would use to invest it rather than having it pass through my checking account, forcing me to exclude it from the reporting in some way. I *thought* this would be the easier path, but I didn't think they not withhold taxes and complicate things further for me. After the comments on here, which I appreciate, I can see that I made the wrong choice.
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