1099-misc and non-employee compensation.

[woozy]

What is the name of your state? Virginia

My wife was given an almost $5,000 incentive bonus last year when she started a new job at a local law firm. This bonus was for starting the job earlier than she had previously agreed to. It doesnt show on her W-2, instead they sent a 1099-misc form with it listed under non-employee compensation.No tax or other withholdings were taken out of the money. Shouldn't it be included on her W-2 instead of the 1099-misc?
How do we show this on our federal tax return ? Won't we end up paying more tax on it if we show it as self-employment income ?
Thanks in advance

 

[fairisfair]

sounds like they reported it correctly. It was a hiring bonus, she was not an employee at the time of her hire. You are responsible for paying the taxes on that income, same as if you had not had enough withheld from her regular income. I am sure one of the tax experts will be along shortly to add further information.

 

[tranquility]

Good question. My gut feeling was the same as fairisfair with the exception that the bonus was not for services and self-employment taxes would not need to be paid.

However, baseball players have a similar (albeit to a far greater amount) situation. I believe Rev. Rul. 2004-109 holds the answer. They are wages where FICA and Medicare taxes are applicable. And, although the ruling does not say so, since they are held to be wages I'd say the amount should have been reported on the W-2 and not on the 1099-misc. To be sure I'd need to do more research then I have time for, sorry.

Info edit:
With a quick re-read of the Ruling, there should have been withholding as well. It seems like W-2 it is.