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Understanding Bonuses: Types and Tax Implications

Bonuses are extra rewards or benefits that are given to employees in addition to their regular salary or wages. Bonuses can be given for a variety of reasons, such as achieving certain performance goals, meeting sales targets, or as a reward for outstanding contributions to the company.
There are several types of bonuses that employers may offer, including:
1. Signing bonus: A one-time payment given to an employee as a reward for accepting a job offer.
2. Performance bonus: A bonus paid to employees who meet or exceed certain performance goals.
3. Sales bonus: A bonus paid to sales employees who meet or exceed their sales targets.
4. Referral bonus: A bonus paid to employees who refer new hires to the company.
5. Loyalty bonus: A bonus paid to employees who have been with the company for a certain amount of time (e.g., 5 years).
6. Profit-sharing bonus: A bonus paid to employees based on the company's profits.
7. Retention bonus: A bonus paid to employees to encourage them to stay with the company long-term.

Bonuses can be paid in cash, stock options, or other forms of compensation. They are typically taxable as ordinary income, unless they are structured as a performance-based bonus, in which case they may be subject to special tax rules.

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