Question

An employee's profit sharing bonus is payable in the year following the employee's death. How should the bonus be taxed and reported?

A. Withhold the FIT, social security and Medicare taxes; report the bonus amount only on Form W-2.
B. Withhold social security and Medicare taxes only and report the bonus amount only on Form W-2.
C. Withhold social security and Medicare taxes and report the taxes on Form W-2 and the bonus amount on Form 1099-MISC.
D. Withhold no taxes and report the bonus amount on Form 1099-MISC.

Answer 1

The bonus should be reported on Form 1099-MISC, and no taxes should be withheld.

Step-by-step explanation:

The correct answer is: D. Withhold no taxes and report the bonus amount on Form 1099-MISC.

In the scenario described, the employee's profit-sharing bonus is payable in the year following their death. Since the employee is deceased, there is no need to withhold any taxes from the bonus payment. The bonus amount should be reported on Form 1099-MISC, which is used to report miscellaneous income.

By reporting the bonus amount on Form 1099-MISC, it ensures that the recipient of the bonus is responsible for paying any applicable taxes on that income.