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Bonus paid for class completion

I know I'll get push back from higher ups so looking for back up..lol
They want to tell workers at our construction company that if they complete a class within a certain number of days they will receive $500 from the company. I'm thinking this would be considered a discretionary bonus and subject to supplemental tax rates. Higher ups will probably push to have this be a "stipend" and paid as an expense reimbursement so there is no tax taken at all. Thoughts? Thanks!

Comments

  • They are receiving the bonus for the nature of their employment, and as such they should be taxed.

  • This is a non-discretionary bonus and the bonus would have to be added to the regular rate of pay to compute overtime.
    A nondiscretionary bonus is a bonus that fails to meet the statutory requirements of a discretionary bonus. Nondiscretionary bonuses are included in the regular rate of pay, unless they qualify as excludable under another statutory provision. Such bonuses are nondiscretionary because the employees know about and expect the bonus. The understanding of how an employee earns one may lead to an expectation to receive the bonus regularly. The fact that the employer has the option not to pay the promised bonus does not make the bonus discretionary.

    A discretionary bonus is excludable from the regular rate of pay. A bonus is discretionary only if all the statutory requirements are met:

    • The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine whether to pay the bonus;
    • The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine the amount of the bonus; and
    • The bonus payment is not made according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.

    However, if the payment is to reimburse actual expenses for taking the course and the course qualifies as a working condition fringe benefit, then the income might be excludible as reimbursement of a working condition fringe benefit. The reimbursement must be paid subject to an accountable expense reimbursement plan.

    The other way the payment might be excludible from income is if paid subject to a bona fide section 127 employer tuition assistance plan.

  • Thanks - I am prepared to add to the regular rate of pay to compute overtime when the bonus is added to that week's check.
    The class is being fully paid for by the company and the $500 is a reward for completing the class in X number of days. There is no cost to the employee.
    So I will "strongly encourage" that these be paid as a bonus, added to regular rate of pay to calculate overtime rate for that week, and taxation will depend on whether I pay it separately or add to a "regular" weekly check.

  • Hello Michellm,
    You can always combine the payment to the regular weekly check to compute the tax. The optional 22% flat rate is optional and may be used if tax was withheld from the employee's regular pay sometime during the current calendar year or the immediately preceding calendar year.