What to Do If Your Bonus Wasn’t Reported on Your W-2

Receiving a bonus can be a rewarding acknowledgment of hard work. However, discovering that your bonus wasn’t reported on your W-2 form can complicate tax season. This issue impacts the accuracy of income reporting and your tax liability.

Reviewing Pay Stubs and Bonus Statements

To address an unreported bonus, start by examining your pay stubs and bonus statements. These documents verify whether your employer processed the bonus correctly. Pay stubs should reflect your gross pay, deductions, and net pay, while bonus statements detail the bonus amount, taxes withheld, and net bonus received. Compare these figures to confirm if the bonus was included in your annual earnings.

Ensure the bonus amount aligns with your employment contract or bonus agreement. Discrepancies may result from miscalculations or administrative errors. For example, bonuses are often taxed at a flat 22% withholding rate, as mandated by the IRS for supplemental wages in 2024. Confirming this rate was applied ensures withholding accuracy.

Asking Your Employer to Correct the Error

If your W-2 shows a missing bonus, contact your HR department or payroll administrator. Clearly explain the issue, referencing specific details from your pay stubs and bonus statements. Organized documentation will help resolve the issue more efficiently.

Discuss the cause of the error, whether it’s an oversight or a systemic payroll issue. Employers are generally willing to correct mistakes when presented with clear evidence. The IRS requires employers to issue a corrected W-2, known as a W-2c, if an error is found. This corrected form must be filed with both the IRS and provided to you.

How to Update Your Tax Return

Once you receive a corrected W-2c, update your tax return to reflect the accurate income. If you’ve already filed, submit Form 1040-X, the Amended U.S. Individual Income Tax Return, to correct your income, deductions, or credits. Follow the IRS instructions carefully to avoid further complications.

Amending your return may change your taxable income, which could affect your tax liability. The IRS typically processes amended returns within 16 weeks, though this timeframe can vary. Use the “Where’s My Amended Return?” online tool to monitor your return’s status.

Possible Penalties for Unreported Bonus

Failing to report a bonus can lead to significant IRS penalties. The IRS may view unreported income as negligence or, in severe cases, tax evasion. Under Internal Revenue Code Section 6662, taxpayers face a 20% penalty on underpayments due to negligence. Intentional underreporting can result in penalties of up to 75% under IRC Section 6663 for civil fraud.

Unreported income can also trigger an IRS audit. During an audit, the IRS examines all aspects of your tax return and may uncover additional discrepancies. The IRS has a three-year statute of limitations for audits, which can extend to six years if unreported income exceeds 25% of your total reported income.

Key Documents to Maintain

Accurate documentation is essential for addressing unreported bonus issues. These records support your case with your employer and protect you in case of an IRS inquiry. Organized records can prevent complications during tax filing or audits.

Retain all pay stubs and bonus statements as primary records of your earnings. Pay stubs outline gross income, deductions, and net pay, while bonus statements clarify the awarded amount and taxes withheld. Keep copies of your W-2 and any corrected W-2c forms issued. These documents reconcile your reported income with IRS records.

Additionally, retain employment contracts, bonus agreements, or correspondence confirming bonus terms. These documents clarify the bonus amount and any associated conditions, which can help resolve disputes. Finally, keep copies of amended tax returns, such as Form 1040-X, and any related IRS correspondence. These records demonstrate your efforts to comply with tax regulations and can be crucial if penalties or audits occur.