Expert: Arthur Naman - 10/17/2008

Question
Hi,

My company is a non-profit senior community center.  Our leadership team would like to pay one time bonuses to the employees without removing taxes from their bonus. Is this possible?  How could we justify this in our records?

Thank you for any assistance you can provide.

Answer
Payroll taxes are *not* an option, they are mandatory.

An alternative, however, is to "gross-up" and have the employer pay the payroll taxes. For example, if you choose to pay $5,000, then you could give the employees a net bonus check of $5,000 showing the gross of let's say, $7,500 -- then withholding, FICA etc. would be deducted so that the total taxes withheld = the $2,500 in my example.

Whoever is doing your payroll taxes should be able to easily assist with this calculation as it is a common occurrence.

If further questions, please ask a follow-up.

Additional:

All compensation paid to an employee is subject to payroll taxes except for a de minimis amount of (I believe, although could be higher like $100.) $25.00.

I believe that the FIT withheld for bonuses can be a flat 20% or the employees normal withholding rate