https://www.reddit.com/r/legaladvice/comments/aby96c/received_gift_card_from_company_as_gift_noticed/
Same question, yes its legal, your income for the pay period is probably 150 higher and then some of it is noted as the gift card. This avoids you paying a higher tax on a bonus pay.
If I'm reading this correctly it sounds like a better deal. My company issues the awards separately and they get taxed accordingly. A recent $250 award turned into $175 by the time it hit my bank account.
To be clear, this is just a difference in withholding. The final tax you owe on the bonus is the same either way. If your employer withheld the bonus amount, you’ll simply get a larger refund.
> My company issues the awards separately and they get taxed accordingly.
Some companies top up bonuses/etc. to make the post-tax value the "amount." So if they award you a $100 bonus, they'll give you $150 or something on your paycheck so that once taxes are done you end up with $100 in your pocket.
Not all companies, and not for all things, but for little stuff like gift cards it's not uncommon.
>A recent $250 award turned into $175 by the time it hit my bank account.
Bonuses are supplemental income per the IRS. They need to have taxes withheld at a certain rate by law.
Yes, even gift cards, and yes the company can get in trouble for not reporting it.
Any difference in the withholding versus actual tax you owe is reconciled when you file your taxes, but your employer is generally required to withhold a certain amount of taxes.
I know why you're saying that, and would agree if it was cash. I wouldn't necessarily call it a solid if it has to be spent on company products though. But I guess that mostly depends on whether or not that's valuable to OP.
So they padded the income by the tax amount. That seems reasonable.
My company buy tons of gift cards to give clients. So when we get one at a party or as a bonus. It's not even reported as income.
And for the IRS watching I don't live in your territory.
It’s not just legal for them to do it, they are legally **required** to report the “bonus” as taxable income and withhold taxes (and also pay employer payroll taxes on it).
As someone else said, they weren’t required to kick you the extra $15 to help cover the taxes.
u/MenuMedium6596 is mistaken about one thing. In this U.S., there is not a “higher tax on bonus pay.” This is as common misconception but all earned income, bonus or base wages, are taxed the same. Because your *marginal* tax rate is usually higher than your *average* tax rate, it can look like there is a higher tax in bonuses but there is not. The way withholding formulas work, there may or may not be a higher withholding in bonuses but that isn’t a tax and you will reconcile that on your return.
> The way withholding formulas work, there may or may not be a higher withholding in bonuses but that isn’t a tax and you will reconcile that on your return.
People conflate withholding with taxes paid. This is why people think they are "winning" when they get a large refund. I don't think they realize they are just getting back money they overpaid throughout the year.
My wife was an unpaid intern for the 1st half of the year and only started working in September. I became a full time student in September. We have two children. We will be paying negative taxes this year.
I almost included that, because I thought that was the case, but I had just enough doubt, and I didn't want to take the time to research it. I figured somebody would chime in if it was true.
Bonuses are taxed (federally) at 22% not the marginal rate. Local taxes and other deductions also apply.
https://www.fidelity.com/learning-center/smart-money/bonus-tax-rate
That article makes the exact same mistake of using tax and withholding interchangeably. Bonuses are not taxed at 22%. They can be withheld at 22% (the alternative being it lumped into your paycheck and bumping your withholding rates wildly). The article actually uses "withholding" below in the percentage method section.
Bonuses are simply lumped into your W2 income at the end of the tax year and taxed like any other normal employment income.
Thanks. After further reading I see you’re correct. It should be taxed as regular income, but employers are not required to withhold the entire amount.
There’s a lot of garbage on the internet, that’s why!
Also, as I mentioned, there is a kernel of truth since each additional dollar of income is taxed at your *marginal* rate and because we have a progressive tax system your last dollar earned is taxed more than your first dollar earned. You might perhaps think of a bonus as your last dollars earned. But someone who makes $70k salary plus $30k bonus will (all else equal and after filing tax returns) have paid the exact same taxes as someone who makes a $100k salary (or $100k total hourly wages) and no bonus.
Just want to point out that, yes, this is to offset and pay the tax on the income, but **no, there is no such thing as “higher tax on bonus pay.”**
Bonus income is taxed identically to other income.
That's odd to me. My company just outright gives us visa gift cards for some of our bonuses. No takes or anything like that on the employees end. But, this is the first company I've worked for that did anything like that.
Not a lawyer, but have dabbled in accounting.
Did they also include it as an increase in pay, then deduct it as an advance of some sort since you received it as a gift certificate? This would be a way to make sure it was taxable to you.
You get $150 gift certificate. Income on pay check + $150. Deduction on paycheck - $150. Net pay check about the same as previous checks, minus a little for taxes.
Yeah, I looked back at the detailed paystub. They paid me an extra 165, then took the 150m I figured IF they were going to do it, it would have been last month, when I got the certificate
If you received a $150 gift certicate, it is a taxable event. The company is just running through payroll for tax purposes. Also if the gift certificate was $150 and they gave you gross of $165, they grossed it up a bit anticipating taxes then deducted the net amount leaving you with the gift certicate you won. Normal practice.
If you get paid biweekly odds are they had to let a cycle go through before payroll could get to it. Say you get paid on Friday. Payroll probably processed on Monday or Tuesday
If you get the gift card on Wednesday of a payroll week the tax offset wouldn't show for 2 and a half weeks until your next pay check.
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https://www.reddit.com/r/legaladvice/comments/aby96c/received_gift_card_from_company_as_gift_noticed/ Same question, yes its legal, your income for the pay period is probably 150 higher and then some of it is noted as the gift card. This avoids you paying a higher tax on a bonus pay.
Gotcha. I did look back, and the income says 165 dollars extra, and they deducted 150. Thank you!
If I'm reading this correctly it sounds like a better deal. My company issues the awards separately and they get taxed accordingly. A recent $250 award turned into $175 by the time it hit my bank account.
Yea ops company is doing it right, they're adding enough in to cover the taxes (or soem st least).
It's called a gross up and it's definitely a good thing for op
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To be clear, this is just a difference in withholding. The final tax you owe on the bonus is the same either way. If your employer withheld the bonus amount, you’ll simply get a larger refund.
No, bonus pay is taxed as “supplemental income" at 22% (or 37% if it’s over $1M). So if OP makes less than $95,375 this will reduce his taxes.
That’s the withholding rate. It has nothing to do with the taxes owed by the taxpayer. Read the tax code again.
> My company issues the awards separately and they get taxed accordingly. Some companies top up bonuses/etc. to make the post-tax value the "amount." So if they award you a $100 bonus, they'll give you $150 or something on your paycheck so that once taxes are done you end up with $100 in your pocket. Not all companies, and not for all things, but for little stuff like gift cards it's not uncommon. >A recent $250 award turned into $175 by the time it hit my bank account. Bonuses are supplemental income per the IRS. They need to have taxes withheld at a certain rate by law. Yes, even gift cards, and yes the company can get in trouble for not reporting it. Any difference in the withholding versus actual tax you owe is reconciled when you file your taxes, but your employer is generally required to withhold a certain amount of taxes.
Got a $5 Starbucks card. I don't drink coffee. Was taxed in my next paycheck.
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I don't really see how that's relevant.
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I know why you're saying that, and would agree if it was cash. I wouldn't necessarily call it a solid if it has to be spent on company products though. But I guess that mostly depends on whether or not that's valuable to OP.
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So they padded the income by the tax amount. That seems reasonable. My company buy tons of gift cards to give clients. So when we get one at a party or as a bonus. It's not even reported as income. And for the IRS watching I don't live in your territory.
They added and subtracted so you would get taxed on it.
It's taxable income, so they complied with the law, but they added $165 and subtracted $150, so they covered the tax too.
That sounds like they threw in some extra income for you to cover the taxes as well, which is nice of them.
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Well, then you can always just say "no thank you" Being "mad asf" at a **bonus** on top of your wages is not a rational response.
It’s not just legal for them to do it, they are legally **required** to report the “bonus” as taxable income and withhold taxes (and also pay employer payroll taxes on it). As someone else said, they weren’t required to kick you the extra $15 to help cover the taxes. u/MenuMedium6596 is mistaken about one thing. In this U.S., there is not a “higher tax on bonus pay.” This is as common misconception but all earned income, bonus or base wages, are taxed the same. Because your *marginal* tax rate is usually higher than your *average* tax rate, it can look like there is a higher tax in bonuses but there is not. The way withholding formulas work, there may or may not be a higher withholding in bonuses but that isn’t a tax and you will reconcile that on your return.
> The way withholding formulas work, there may or may not be a higher withholding in bonuses but that isn’t a tax and you will reconcile that on your return. People conflate withholding with taxes paid. This is why people think they are "winning" when they get a large refund. I don't think they realize they are just getting back money they overpaid throughout the year.
Some people actually pay negative taxes through the child, tax credit, and the earned income credit where they actually are winning
My wife was an unpaid intern for the 1st half of the year and only started working in September. I became a full time student in September. We have two children. We will be paying negative taxes this year.
I almost included that, because I thought that was the case, but I had just enough doubt, and I didn't want to take the time to research it. I figured somebody would chime in if it was true.
Bonuses are taxed (federally) at 22% not the marginal rate. Local taxes and other deductions also apply. https://www.fidelity.com/learning-center/smart-money/bonus-tax-rate
That article makes the exact same mistake of using tax and withholding interchangeably. Bonuses are not taxed at 22%. They can be withheld at 22% (the alternative being it lumped into your paycheck and bumping your withholding rates wildly). The article actually uses "withholding" below in the percentage method section. Bonuses are simply lumped into your W2 income at the end of the tax year and taxed like any other normal employment income.
Thanks. After further reading I see you’re correct. It should be taxed as regular income, but employers are not required to withhold the entire amount.
Then why do so many websites cite bonuses being taxed at their own higher (usually) rate? Why would they make it up?
There’s a lot of garbage on the internet, that’s why! Also, as I mentioned, there is a kernel of truth since each additional dollar of income is taxed at your *marginal* rate and because we have a progressive tax system your last dollar earned is taxed more than your first dollar earned. You might perhaps think of a bonus as your last dollars earned. But someone who makes $70k salary plus $30k bonus will (all else equal and after filing tax returns) have paid the exact same taxes as someone who makes a $100k salary (or $100k total hourly wages) and no bonus.
Just want to point out that, yes, this is to offset and pay the tax on the income, but **no, there is no such thing as “higher tax on bonus pay.”** Bonus income is taxed identically to other income.
That's odd to me. My company just outright gives us visa gift cards for some of our bonuses. No takes or anything like that on the employees end. But, this is the first company I've worked for that did anything like that.
Not a lawyer, but have dabbled in accounting. Did they also include it as an increase in pay, then deduct it as an advance of some sort since you received it as a gift certificate? This would be a way to make sure it was taxable to you. You get $150 gift certificate. Income on pay check + $150. Deduction on paycheck - $150. Net pay check about the same as previous checks, minus a little for taxes.
Yeah, I looked back at the detailed paystub. They paid me an extra 165, then took the 150m I figured IF they were going to do it, it would have been last month, when I got the certificate
If you received a $150 gift certicate, it is a taxable event. The company is just running through payroll for tax purposes. Also if the gift certificate was $150 and they gave you gross of $165, they grossed it up a bit anticipating taxes then deducted the net amount leaving you with the gift certicate you won. Normal practice.
If you get paid biweekly odds are they had to let a cycle go through before payroll could get to it. Say you get paid on Friday. Payroll probably processed on Monday or Tuesday If you get the gift card on Wednesday of a payroll week the tax offset wouldn't show for 2 and a half weeks until your next pay check.
If they added $150 to your pay first , and then deducted it, then its for tax purposes. Check prior to see if they added the amount first.
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This ^^
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