- The Internal Revenue Service provides clear guidance on how bonus income is taxed. A bonus you receive as cash is no different from income and is subject to income tax in the same manner as your regular pay. IRS guidelines specifically include a signing bonus as a type of bonus treated as regular income.
- A bonus offered as a product or service rather than as cash is also taxable. You must determine the fair market value of the bonus and include it in your income tax filing. For example, if your job gives you an all-expenses-paid trip to a resort as a bonus, you should include the overall value of the trip as income.
- Your workplace will generally include a cash bonus as part of the overall wages and salary income it reports on your W-2 form at the end of the year. Noncash bonuses may not be included on your W-2, but you should include this as income on your tax filings.
- A bonus paid by a state government to a military veteran for service in a combat zone is not taxable income and does not need to be reported.
- A bonus that has been promised to you but not yet received is not subject to tax. Do not report a bonus as income until the tax year in which the bonus is actually received.
- Regular income and bonus income are taxed identically. However, your bonus income increases your overall annual income and the increase may put you into a higher tax bracket. When this occurs, all income above the bracket threshold is subject to a higher rate of taxation.
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