Page 27 - Virtual Currencies

8:29 - 7-Feb-2023
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Bonuses and awards. Bonuses or awards amount of deferrals for the year under a non- or resign, this amount will be included as wages
you receive for outstanding work are included in qualified deferred compensation plan. This on your Form W-2.
your income and should be shown on your amount is shown in Form W-2, box 12, using If you resign from one agency and are reem-
Form W-2. These include prizes such as vaca- code Y. This amount isn’t included in your in- ployed by another agency, you may have to re-
tion trips for meeting sales goals. If the prize or come. pay part of your lump-sum annual leave pay-
award you receive is goods or services, you However, if at any time during the tax year, ment to the second agency. You can reduce
must include the FMV of the goods or services the plan fails to meet certain requirements, or gross wages by the amount you repaid in the
in your income. However, if your employer isn’t operated under those requirements, all same tax year in which you received it. Attach
merely promises to pay you a bonus or award at amounts deferred under the plan for the tax to your tax return a copy of the receipt or state-
some future time, it isn’t taxable until you re- year and all preceding tax years are included in ment given to you by the agency you repaid to
ceive it or it’s made available to you. your income for the current year. This amount is explain the difference between the wages on
Employee achievement award. If you re- included in your wages shown in Form W-2, your return and the wages on your Forms W-2.
ceive tangible personal property (other than box 1. It’s also shown in Form W-2, box 12, us- Outplacement services. If you choose to
ing code Z.
cash, a gift certificate, or an equivalent item) as accept a reduced amount of severance pay so
an award for length of service or safety achieve- Nonqualified deferred compensation plans that you can receive outplacement services
ment, you must generally exclude its value from of nonqualified entities. In most cases, any (such as training in résumé writing and inter-
your income. However, the amount you can ex- compensation deferred under a nonqualified view techniques), you must include the unre-
clude is limited to your employer's cost and deferred compensation plan of a nonqualified duced amount of the severance pay in income.
can’t be more than $1,600 ($400 for awards entity is included in gross income when there is
that aren’t qualified plan awards) for all such no substantial risk of forfeiture of the rights to Sick pay. Pay you receive from your employer
awards you receive during the year. Your em- such compensation. For this purpose, a non- while you're sick or injured is part of your salary
ployer can tell you whether your award is a qualified entity is one of the following. or wages. In addition, you must include in your
qualified plan award. Your employer must make income sick pay benefits received from any of
the award as part of a meaningful presentation, 1. A foreign corporation, unless substantially the following payers.
under conditions and circumstances that don’t all of its income is: • A welfare fund.
create a significant likelihood of it being dis- a. Effectively connected with the con- • A state sickness or disability fund.
guised pay. duct of a trade or business in the Uni- • An association of employers or employees.
However, the exclusion doesn’t apply to the ted States, or • An insurance company, if your employer
following awards. paid for the plan.
• A length-of-service award if you received it b. Subject to a comprehensive foreign However, if you paid the premiums on an acci-
for less than 5 years of service or if you re- income tax. dent or health insurance policy, the benefits you
ceived another length-of-service award 2. A partnership, unless substantially all of its receive under the policy aren’t taxable. For
during the year or the previous 4 years. income is allocated to persons other than: more information, see Other Sickness and In-
• A safety achievement award if you're a jury Benefits under Sickness and Injury Bene-
manager, administrator, clerical employee, a. Foreign persons for whom the income fits, later.
or other professional employee or if more isn’t subject to a comprehensive for-
than 10% of eligible employees previously eign income tax, and Social security and Medicare taxes paid by
received safety achievement awards dur- b. Tax-exempt organizations. employer. If you and your employer have an
ing the year. agreement that your employer pays your social
Note received for services. If your employer security and Medicare taxes without deducting
Example 2. You received three employee gives you a secured note as payment for your them from your gross wages, you must report
achievement awards during the year: a nonqua- services, you must include the FMV (usually the the amount of tax paid for you as taxable wages
lified plan award of a watch valued at $250, and discount value) of the note in your income for on your tax return. The payment is also treated
two qualified plan awards of a stereo valued at the year you receive it. When you later receive as wages for figuring your social security and
$1,000 and a set of golf clubs valued at $500. payments on the note, a proportionate part of Medicare taxes and your social security and
Assuming that the requirements for qualified each payment is the recovery of the FMV that Medicare benefits. However, these payments
plan awards are otherwise satisfied, each you previously included in your income. Don’t aren’t treated as social security and Medicare
award by itself would be excluded from income. include that part again in your income. Include wages if you're a household worker or a farm
However, because the $1,750 total value of the the rest of the payment in your income in the worker.
awards is more than $1,600, you must include year of payment.
$150 ($1,750 − $1,600) in your income. If your employer gives you a nonnegotiable Stock appreciation rights. Don’t include a
unsecured note as payment for your services, stock appreciation right granted by your em-
Differential wage payments. This is any pay- payments on the note that are credited toward ployer in income until you exercise (use) the
ment made by an employer to an individual for the principal amount of the note are compensa- right. When you use the right, you're entitled to
any period during which the individual is, for a tion income when you receive them. a cash payment equal to the FMV of the corpo-
period of more than 30 days, an active duty ration's stock on the date of use minus the FMV
member of the uniformed services and repre- Severance pay. You must include in income on the date the right was granted. You include
sents all or a portion of the wages the individual amounts you receive as severance pay and any the cash payment in income in the year you use
would have received from the employer for that payment for the cancellation of your employ- the right.
period. These payments are treated as wages ment contract.
and are subject to income tax withholding, but Virtual currency. If your employer gives you
not FICA or FUTA taxes. The payments are re- Severance payments are subject to social virtual currency (such as Bitcoin) as payment
ported as wages on Form W-2. security and Medicare taxes, income tax for your services, you must include the FMV of
withholding, and FUTA tax. Severance pay- the currency in your income. The FMV of virtual
Government cost-of-living allowances. ments are wages subject to social security and currency paid as wages is subject to federal in-
Most payments received by U.S. Government Medicare taxes. As noted in section 15 of Pub. come tax withholding, Federal Insurance Contri-
civilian employees for working abroad are taxa- 15, Special Rules for Various Types of Service bution Act (FICA) tax, and Federal Unemploy-
ble. However, certain cost-of-living allowances and Payments, severance payments are also ment Tax Act (FUTA) tax and must be reported
are tax free. Pub. 516 explains the tax treatment subject to income tax withholding and FUTA on Form W-2. Notice 2014-21, 2014-16 I.R.B.
of allowances, differentials, and other special tax. 938, describes how virtual currency is treated
pay you receive for employment abroad. for federal tax purposes and is available at
Accrued leave payment. If you're a fed- IRS.gov/irb/2014-16_IRB#NOT-2014-21. For
Nonqualified deferred compensation plans. eral employee and receive a lump-sum pay- further information, see IRS.gov/virtualcurrency.
Your employer will report to you the total ment for accrued annual leave when you retire
Page 4 Publication 525 (2022)