true
Top
  1. TurboTax /
  2. Tax Calculators & Tips /
  3. Tax Tips Guides & Videos /
  4. IRS Tax Return /
  5. Video: Are Bonuses Included in Adjusted Gross Income?

Video: Are Bonuses Included in Adjusted Gross Income?

Updated for Tax Year 2022 • November 17, 2022 02:29 PM


OVERVIEW

You may be wondering if the bonus you receive at work is subject to special tax treatment. Watch this video to learn more about work bonus, and how they affect your Adjusted Gross Income, or AGI.


TABLE OF CONTENTS

Video transcript:

Hello, I’m Scott from TurboTax, with important news for taxpayers who receive bonuses from their employer.

You may be wondering if the bonus you receive at work is subject to special tax treatment. Unfortunately it isn’t, and you must include your bonuses on your tax return. This will inevitably increase your adjusted gross income, or AGI—which can potentially increase the amount of tax you owe.

When your employer provides you with a bonus, they will report it on your W-2 in box 1—but it’s combined with your normal wages or salary. In the eyes of the Internal Revenue Service, your bonus is no different than the salary you receive. And if your employer doesn’t give you a bonus in cash, they will still report the fair market value of it on the W-2.

For example, if your company rewards you for your dedication with a free vacation, your W-2 will reflect the cost of your airline ticket, hotel and all other expenses your vacation covers. Just like a cash bonus, these amounts get added to your normal wages or salary.

There are other implications to reporting a larger AGI that can affect your tax return. If you itemize deductions and report some expenses that must be reduced by a percentage of your AGI, the larger your AGI is, the lower your itemized deductions will be. In addition, a larger AGI can potentially make you ineligible to take certain deductions or force you to take less than the maximum deduction that’s available to taxpayers with lower incomes.

And lastly, the higher your AGI is, the more difficult it may become to qualify for tax credits.

One last thing to remember is that your employer must withhold taxes on your bonuses just like they do for your salary. So when you receive your W-2, it will report the total amount of federal tax you paid through withholding—which you will report on your return to reduce the amount of your outstanding tax bill.

cash being handed from one person to another

Let an expert do your taxes for you, start to finish with TurboTax Live Full Service. Or you can get your taxes done right, with experts by your side with TurboTax Live Assisted. File your own taxes with confidence using TurboTax. Just answer simple questions, and we’ll guide you through filing your taxes with confidence. Whichever way you choose, get your maximum refund guaranteed.

All you need to know is yourself

Answer simple questions about your life and TurboTax Free Edition will take care of the rest.

For simple tax returns only
See if you qualify

Real tax experts on demand with TurboTax Live Basic

Get unlimited advice and an expert final review. Done right, guaranteed.

For simple tax returns only

Looking for more information?