Year-end Bonuses, what considered an income and how it taxed. | VK Consulting LLC
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Its end of the year and exciting time because of year-end bonuses, but did you know that  there are different types of bonuses?

There are two types of bonuses:  Non-discretionary and Discretionary.

Non-discretionary is a bonus that announced to employees in advance and usually used to encourage productivity, meet certain deadlines or marks. Starting December 1, 2016 there are new rules for overtime pay which effects non-discretionary bonuses and how they are calculated.

How to Calculate Overtime with a Non-discretionary Bonus:

If the non-discretionary bonus is earned over a single workweek: Add the bonus to the employee’s regular earnings when determining the regular rate of pay for that week.

Example: A non-exempt employee is paid $10 per hour, works 50 hours, and receives a $100 non-discretionary productivity bonus for that week. To calculate overtime:

Step 1: Calculate total straight-time. ($10 hourly rate x 50 hours worked) + $100 bonus = $600

Step 2: Calculate regular rate of pay. $600 straight-time pay divided by 50 hours worked = $12

Step 3: Calculate overtime premium pay. $12 regular rate of pay x .5 x 10 overtime hours = $60

Note: Since the straight-time earnings have already been calculated for all hours worked (see Step 1), the employee is entitled to an additional 10 hours of overtime pay, calculated at one-half the regular rate of pay.

Step 4: Calculate total compensation for week. $60 overtime pay + $600 straight-time pay = $660


Discretionary bonus is not announced in advance, and typically is a surprise to employees.


Regardless of what type of a bonus it is, its taxes at 25% at a federal level ( if the amount of bonus is under $1 million) . Also cash, gift certificates and similar items that can be exchange for cash considered taxable wages regardless of the amount and need to be taxed .  However if you get candies or gift basket for holidays those are not considered income.

Happy Holidays!share_image