RS 01401: Wages
TN 12 (06-09)
A. Definition of bonuses
Bonuses are wages if they are paid to an employee for services rendered by that employee for his or her employer. Bonuses given by a manufacturer to a dealer's salesperson, who meets a prescribed sales quota, whether paid directly by the manufacturer or through the dealer, are not wages.
Example:
An automobile dealership gives a bonus to a salesperson for meeting a sales quota. This counts as wages.
Example:
An automobile manufacturer gives a bonus to a dealership’s salesperson for meeting a sales quota. This is not considered wages because there is no employer/employee relationship between the manufacturer and the salesperson. (For a definition of employer/employee relationship, see RS 02101.010).
Reference:
IRS Ruling 70-337
B. Employee receives cash award
A cash award an employee receives for a suggestion or outstanding work is part of the employment relationship and is wages.
EXCLUSION: Length of service and safety achievement awards, see RS 01402.205.
C. Third party one-time prizes
One-time prizes paid by a third party are not wages unless there is an employer/employee relationship between the one awarding the prize and the recipient of the prize.
Example:
Cosmetic companies provide prizes which are given at random to department store employees. Because the employees do not work for the cosmetic company and there is no employer/employee relationship, the value of the prize is not counted as wages.