Can we issue a 1099-MISC for this?

Question

We had a new out-of-house sales representative begin with our company who lives about an hour away from the corporate office. The CEO of the company wanted me to issue the new sales representative a check from the cash account for the new sales rep's signing bonus right away because he was up in our office that same day and he just wanted to hand it over to him. This did not leave the option to include it in the following week's payroll that we have done out-of-house as well. I cut the check like the CEO had requested, but is it ok for this income to be reported on a 1099-MISC for the sales representative, or should this be reconciled another way? If so, what's the best possible solution?

Answer 1

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If the new rep is an employee, then the bonus must be treated as part of payroll, with taxes taken out, and the amount reported on his W-2 for the year. A check can be written as an "advance" but you still have to go back and deduct the taxes from it, so one (or more) of his future checks will need to have that withheld.

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Thank you all for your input.

Answer 2

No, it is NOT acceptable to put this on a 1099. You SHOULD have withheld FICA taxes, Federal income taxes at 25%, and any state income taxes from the check. Now you are faced with the tasteless task of recovering the unwithheld tax from the employee OR adding the FICA taxes that you should have withheld to the gross payment and including those on the employee's W-2. You may also be facing penalties from the IRS for not withholding the statutory 25% Federal income tax from the bonus.

Next time, tell the CEO that it MUST go through payroll since that's what the law requires.

Answer 3

If the sales representative is an employee, then you must issue a W-2 and not a 1099-MISC. You may use a 1099-MISC only if the sales representative is an independent contractor.

Answer 4

Ask the CEO if he wants to ask the employee to return part of the check or if he wants to ramp the amount of the signing bonus up by 60% to cover all the taxes.