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D
Deadwood Al
December 9, 2024
Question

Cash bonus payments included for tax

  • December 9, 2024
  • 1 reply
  • 0 views

Looking for some easy but clear and accurate way to handle cash bonus payments in the payroll system.

 

Let's say employee A did something that warranted a bonus payment and management chose to pay in cash for the impact that cold hard cash gives more than a paper check. So A gets a $100 bill for a reward/bonus. Now we know that this $100 is taxable, so we need to get something on payroll that will calculate tax on this $100 ... but we don't want to give A another $100, so we need to back out the $100 but this "backing out" must be non-taxable because we wanted to record the tax on the $100 and we don't want to cancel out the tax on the $100. 

 

I remember that Paychex had a simple way of this "in and out" payment, but I don't see anything in QB to handle this, so I'm looking for some suggestions & comments.

 

I guess we'd need to create an income type account for "Cash Bonus" that is subject to tax, and then a "Bonus Reverse" deduction that is non-taxable to include both in the payroll nearest to the physical giving of the Bonus, yes? Looking for how other QB users are doing this to ensure compliance with tax laws and something simple to do and understand. Thanks in advance for any input.

1 reply

G
GenmarieM
December 9, 2024

I'd be glad to guide you in handling your taxable cash payments in QuickBooks Desktop Payroll, Deadwood.

 

Indeed, you are correct. To manage cash bonuses effectively, you'll need to set up two separate payroll item lists in QuickBooks: one for taxable bonus (Cash Bonus) and another for non-taxable bonus (Bonus Reverse).

 

Here's how:

 

  1. Go to Lists, then select Payroll Item List.

  2. Click Payroll Item, then New.

  3. Choose Custom Setup and hit Next.

  4. Select Wage, then Next.
  5. Choose Bonus, then Next.

  6. Enter the name of this item "Cash Bonus", then click Next.

  7. Select the income account you want the item to track to, then select Finish.

 

Next, apply the same process to the non-taxable item (Bonus Reverse).

 

When processing your employee's payroll, include the taxable item (Cash Bonus), so QuickBooks will automatically calculate the taxes for the bonus payment. Then, enter the non-taxable amount for deductions to offset the cash bonus amount

 

For detailed information and steps, you can utilize this article for reference: Pay employee bonuses.

 

Moreover, I've added this article as your reference if you want to print paychecks and pay stubs: Print or reprint paychecks and pay stubs.

 

Keep us posted if you have further questions about handling cash payments in QuickBooks Desktop. We'll be here to lend a hand at any time.

D
Deadwood AlAuthor
December 9, 2024

You said "For deductions, enter the non-taxable amount as a negative figure to offset the cash bonus amount."

 

If the item "Bonus Reverse" is created as a Deduction type, I don't think you enter it as a negative amount ...?? A deduction is automatically subtracted from the amount to pay, just like other deduction items (insurance cost, garnishments, 401K contributions, etc.)  

 

Did I miss something, or did you not really mean to "enter" is as a negative amount?

J
JamaicaA
December 9, 2024

You haven’t overlooked anything, and there’s no need to input a negative figure since deductions are deducted from pay automatically, Deadwood. Let me clarify the process for recording bonuses to ensure a correct calculation of the tax amount.

 

Itemizing deductions such as insurance expenses, garnishments, and 401K contributions within the Payroll Info will automatically lower your income. In this scenario, the Cash Bonus and Cash Reverse will be deducted from an employee’s earnings without needing to enter a negative amount.

 

Alternatively, creating a bonus item from the Payroll Item List enables you to add it to the Earnings section. Therefore, we can establish a custom entry for the Cash Bonus and a deduction-type entry for the Cash Reverse. I'll show you how:

 

  1. Go to Lists, then select Payroll Item List.
  2. Click Payroll Item then New.
  3. Choose Custom Setup, then Next.
  4. Select Wage, then Next.
  5. Choose Bonus, then Next.
  6. Input Cash Bonus as the name of this item, then Next.
  7. Select the expense account you want this item to be associated with, then Finish.

 

Next, follow these instructions for the Reverse Bonus:  

 

  1. Go to Employees, then Employee Center.
  2. Select your employee. 
  3. Select Payroll Info, then add the bonus item in the Additions, Deductions, and Company Contributions section.
  4. Select OK.

 

I'm adding some screenshots below for reference:

 

Additionally, you can pay the bonuses on separate paychecks or include them with regular ones. To proceed, scan Step 2: Pay out the bonuses in this article for detailed instructions: Pay employee bonuses.

 

Moreover, you can print your paychecks or pay stubs in QuickBooks Desktop Payroll to provide them directly to your employees.

 

I’m just a message away if you have any additional questions or concerns regarding the documentation of bonuses for tax purposes in QuickBooks. Stay safe.

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