Expert: Vanessa D. Powell, CPA - 12/10/2009

Question
Hello-
I am receiving a end of the year bonus check incentive for my work performance.  I have received these checks in past years from another company that I am no longer with, and this check was not taxed.  Due to it being an incentive check.  The new company that I work for is telling me that the accountant is stating that the check has to be taxed.  Which means I lose over 1/2 of the incentive I earned.  Is this information accurate from the accountant or is there a way the check could not be taxed?

Answer
If your previous employer was giving you bonuses without taxing them, then they were breaking the law.  What is more likely is that they told you they would be giving you "x" amount, and then grossed it up to account for taxes.  In other words, they said they would give you $5,000 and handed you a check for that amount, but actually gave you, say, $7,500 and just withheld the extra $2,500 for taxes.  Does that make sense?  That's what a lot of employers do so that it doesn't seem like such a let-down when you have to pay taxes on it.

So, long story made short, the accountant is correct, and you do have to pay taxes on your bonus.  It stinks, but even when incentive-based, bonuses are still taxable.  Sorry. :(

Let me know if I can clarify anything further.
Vanessa