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.