We provide bonuses to our employees on their anniversaries (the amount depends on length of service). We give them the bonus in the form of a Visa Gift Card. At the end of each year, we give each employee a $200 Gift Card. Do these bonuses have to be calculated into the hourly rate of pay for nonexempt employees? We are in California.
Bonuses are fully taxable. You must withhold Social Security and Medicare taxes at the usual rate. Federal income tax must also be withheld at a statutory rate according to IRS guidelines (25%), you can withhold at a higher rate if the employee request that. Bonuses can be broken out in a separate line item on the W-4 and normally are not included in the wage line. You should consult a tax adviser.
Gift cards, typically under $25.00 or less, are “de minimis” fringe benefit (small amount). The IRS does not give any guidance on this; you should consult your tax adviser.
In California, a discretionary bonus includes sums paid to employee during the holiday or gifts on special occasions, it does not need to be factor into wages. A non-discretionary bonus a bonus paid to an employee based on performance and it is factored into the regular rate of pay when calculating overtime. Please contact a tax adviser for correct additional information.
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