If I issue a bonus paycheck to employees for the payroll period ending December 31, 2007 but date the check with the current date, are there any tax consequences for last year in terms of either payroll taxes or employee income tax? I think the only thing that matters is the date the employee was paid (current date)? Is that correct? Thanks.
The date the check is issued determines which tax year the wages get reported.
For the business -- for the employee it will be when they receive it as they will almost certainly(:) ) be on a cash basis on their tax year.
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Those are the "official" guidelines from the IRS using the concept of "constructive receipt".
But in reality, the w-2 received (and reported to the IRS/SSA) will be based on the paycheck dates not the year the employee received it. With many companies using Direct deposit the last paycheck of the year when dated in that year will be included on the 2007 w-2. It is not worth the hassle with the IRS to have the company report one number to the IRS and you decide to use a number that is not reflected on the w-2 received.
For the employee and payroll reports everything is based on the paycheck dates so those bonuses are 2008 wages.
For an accrual based company those bonuses should be accrued as a 2007 expense since they reflect a bonus earned in 2007. This accrual does not impact payroll taxes.
Thank you all very much. And everyone is in agreement too!
If I were working for you and you waited until nearly first of April to make a so-called "year-end" bonus, unless it were really to my advantage to take the tax hit in '07 I'd argue to point w/ the IRS if they questioned it. I'd note on the return the reason for the discrepancy and highly doubt it would ever be questioned.
If, rather than "current date" OP means at (or very near) the time the standard year-end payroll were paid, that's something else again. I read the question as only having any validity asking now as a delayed payment, but I suppose he could be looking at tax implications of a previously-executed action--that didn't occur to me until now, though.
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Many large companies pay bonuses for prior year performance in the March/April timeframe. They purposely keep them out of the normal heavy payroll timeframes like year end W-2s or corporate tax filings. It is wages for 2008. I don't think that you would win this argument with the IRS since you received the money in 2008. The only time you *might* win the argument would be a December 2007 paycheck that was not received until 2008.
Laura wrote: ...
It was that I got an implication that there could somehow be an '07 W2 indicating it was '07 wages rather than '08 I was saying I'd take issue w/ (assuming it made any significant difference in the '07 return, that is).
Again, if I got an _'07_ W2 that showed a sizable amount of income that wasn't actually received until Mar/Apr '08, I don't think I have any trouble at all w/ the IRS in not reporting it until '08's return.
I think we're talking past each other here...
That is possible....It's been a long week.
What I was saying was the 2007 w2 would not include any income associated with the April 08 bonus. It would only include wages received in 2007. The April 08 bonus would be included in the 2008 w2.
Is that better?
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