Question

An employee's profit sharing bonus is payable in the year following the employee's death. How should the employer tax and report the bonus?

A. Withhold federal income tax at the optional flat rate, social security and Medicare taxes; report the bonus amount on Form W-2, Boxes 1, 3, and 5.
B. Withhold no taxes and report the bonus amount on Form 1099-MISC, Box 3.
C. Withhold no taxes and report the bonus amount on Form 1099-MISC, Box 7.
D. Withhold social security and Medicare taxes only and report the bonus amount on Form W-2, Boxes 3 and 5.

Answer 1

The employer should withhold federal income tax at the optional flat rate, social security, and Medicare taxes and report the bonus amount on Form W-2, Boxes 1, 3, and 5.

Step-by-step explanation:

The employer should withhold federal income tax at the optional flat rate, social security, and Medicare taxes and report the bonus amount on Form W-2, Boxes 1, 3, and 5.

Option A is the correct answer because the profit-sharing bonus is considered taxable income for the employee, and therefore federal income tax should be withheld at the optional flat rate. Additionally, social security and Medicare taxes should be withheld as usual. The bonus amount should be reported on Form W-2, Boxes 1, 3, and 5.