If you have paid a bonus to employees sometime during the tax year, you may wonder: Are bonuses included in W2 filings? In short: Yes. An employer should report bonuses paid to an employee in box 1 of a W2 form.
However, it can get a little complicated. The following guide will walk you through the bonus reporting process. If you need help completing W2s, 1099s, or any other tax and wage form, remember that AMS has powerful tools to support you.
How Are Bonuses Included in W2 Filings?
In “Publication 15 (2025), (Circular E), Employer’s Tax Guide”, the Internal Revenue Service establishes that bonuses are a form of compensation. That means a bonus is subject to the same taxation as an employee’s salary or other wages.
Just like with regular wages, employers withhold a certain amount of bonuses for:
- Social Security
- Medicare
- Other income tax withholdings
Since the IRS treats bonuses as supplemental wages, employers must report any bonus amount together with the employee’s annual wages. To do that, employers must:
- Step 1: Total the amount of bonus wages, calculating the value of any bonuses that are not direct wages, like vacations
- Step 2: Report an employee’s total wages and supplemental wages in box 1 of the W2
Regular wages are subject to federal withholding at a flat rate of 22%, as are bonuses included in W2. Employers can choose to use the aggregate method instead of the 22%.
The aggregate method involves subtracting the amount withheld from just an employee’s normal wages from the amount withheld of their combined normal and supplemental wages. Either way, employers take some amount from a bonus.
Because the IRS categorizes bonuses as wages, these payments can adjust someone’s tax bracket or change deductions that they might have previously qualified for. Employers and employees alike should pay close attention to how bonuses appear on their tax filings.
Frequently Asked Questions
- Can you 1099 an employee for a bonus? – No, you cannot use a 1099 to report a bonus for an employee or contractor. All bonuses are considered general income, which means an employer must report on the employee’s W2 form. You can visit the information guide that the IRS provides on bonuses and other related items covered in their publication.
- What happens if a business gives a bonus to a contracted worker? – The business will need to include that bonus in the total amount paid to the contractor on their 1099 form. That would be an occasion for reporting a bonus on a 1099, but only if the total amount paid (including any bonuses) to the contractor exceeds $600.
- Can you give an employee a bonus without any taxes? – Unfortunately, no, because an employer must always withhold taxes from any employee bonus payments. Employees can reduce their taxes on bonuses, though, by exploring deductions, increasing 401(k) contributions, and/or contributing to a traditional IRA.
How AMS Products Can Help
If you utilize a combination of hired employee work and contracted work, you will need a system that handles both W2 and 1099s forms. AMS has the solution in our base W2/1099 Forms Filer program.
Our products give users the flexibility of being able to generate and complete both W2 and 1099 forms as you need them. You can keep all of your employee files organized and complete all of your forms on time. Take our products for a test-run with our free, downloadable 1099-etc Demo software to see how our systems can work for you.