How to Report Bonus on Tax Return: A Guide

Many employers issue annual bonuses to their employees and must know how to report bonus on tax return forms. Reporting bonuses requires all parties to understand their role. An employer typically reports bonuses that they paid to an employee in Box 1 of a W-2 form. Keep in mind that employers may issue bonuses in a few ways. The method influences how employers and employees report any extra funds that a business issues during tax season. Some businesses find it easier, for that reason, to bring in the support of a bookkeeper. A skilled bookkeeper can help a business with their reporting if the business starts issuing bonuses for the first time.

All employers and bookkeepers must complete their W-2, 1099, and other tax and wage forms by the Internal Revenue Services’ deadlines. We created the following guide to explain what any bookkeeper, employer, and employee can expect as they navigate the bonus reporting process while using our software. Advanced Micro Solutions offers powerful and reliable tools within its W-2/1099 Forms Filer. Bookkeepers and employers can enter their data onto entry screens that reflect the actual tax forms.


Bookkeeper Tips for How to Report Bonus on Tax Return

Bookkeepers need trustworthy software to assist their clients with reporting bonuses. Look for software with certain basic tools. The following tools will help bookkeepers feel more prepared to meet their clients’ needs during the tax season.

A Browse Command – Saving time and reducing your workload as a bookkeeper is important. Look for software with a Browse command so that you can enter any data using a spreadsheet format. Finding a program like AMS that only requires data entry once saves additional time.

Data Importing Compatibility – Employers keep track of employee bonuses using a variety of applications and sources. Ask where a client stores their data before you invest in software that helps you manage how to report bonus on tax return forms. Our software allows users to import data from sources such as ordinary text files, form print files, or Excel.

Payer Backup and Restore – The quickest way for you to waste time and lose clients is if you lose all of their data. Clients need to trust that a bookkeeper can report every transaction and payment. Get software that automatically saves data as you access a new record or form.

Security – Generating table reports and client letters is part of the bookkeeper process. Another aspect of bookkeeping responsibilities is creating encrypted PDF files. Bookkeepers can email secure reports containing reported bonuses to their clients directly from our W-2/1099 software.


What Employees Should Know About Taxable Bonuses

Employers have a few options for when they decide how to report bonus on tax return forms. An employer pays taxes on a bonus using either the percentage method or aggregate method.

Percentage Method – Employers use the percentage method when they issue bonuses and withhold taxes at an established flat rate. The rate depends on the value of a bonus.

Aggregate Method – Employers may issue bonuses as part of a regular salary payment. The aggregate method requires an employer to look at the total amount and calculate the consistent overall amount that they must withhold.


How Does the IRS Define a Bonus?

The IRS has a more technical understanding of bonuses than some employers or employees. A bonus falls under the IRS’ umbrella of a supplemental wage. Employers issue any supplemental wage separate from a standard salary. Understanding how to report bonus on tax return forms means knowing that an employer can issue pay in cash or in other forms. The different payment forms include company “fringe benefits” like overtime pay, prizes, or payment for accumulated sick leave.


Reporting Solutions with AMS

Our core W-2/1099 software offers additional features as you report bonuses and other liabilities throughout the year. Our system supports up to 99,999 employees or recipients per payer. AMS offers electronic filing with the purchase of our E-file Services. We designed a full accounting suite with six optional add-on modules. These modules are: Software Generated Forms, Forms Filer Plus, AMS Payroll, E-File, Affordable Care Act Filer, and 1042-S Filer.

Our customizable tools function for each company’s unique needs. Bookkeepers and employers can try our free 1099-etc demo. It showcases our base program and lets users determine which modules they want to add onto it. Call our support team at (405) 340-0697 to ask any questions before you invest in software that will help you navigate how to report bonus on tax return forms.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.