Employee bonuses, no matter what time of year they occur, are subject to payroll taxes and must be included in the employee’s W-2 wages. Not including these amounts or issuing your employee a 1099 for the bonus amount could land you in hot water. If you would like your employee to receive a specific bonus amount such as $500 you may want to consider increasing the gross amount of the bonus. This will allow you as the employer to essentially pay the payroll taxes on their behalf. Alternatively, you could award nominal amounts in the form of gift cards, which are not taxable. Consider contacting your accountant to assist you in the gross up calculations to ensure that all payroll taxes are properly filed & paid.
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