How to report an employer's untaxed cash gift?

[Fields of Gold]

I print out tax forms off the IRS website, complete them myself and file by USPS, so no help from tax software.  I have a question.

An employer gave me a small cash gift that was untaxed (not on my W2). 

The IRS is very clear that cash and cash equivalents (specifically including gift cards) are always included as taxable income when they are provided by the employer, regardless of amount, with no exceptions.

I will report the cash gift amount on my Federal IRS tax return.  How is this handled on tax forms?
 
In addition to ordinary income tax on the gift, I believe I have to pay Social Security and Medicare taxes for both the employee and employer amounts.

Is IRS Form 8919 the correct form to report this cash gift?  Form 8819 is "Uncollected Social Security and Medicare Tax on Wages."

From Form 8919

• You performed services for a firm.
• You believe your pay from the firm wasn’t for services as an independent contractor.
• The firm didn’t withhold your share of social security and Medicare taxes from your pay.
• One of the reasons listed below under Reason codes applies to you.

Reason codes. For each firm listed below, enter in column (c) the applicable reason code for filing this form. If none of the reason
codes apply to you, but you believe you should have been treated as an employee, enter reason code G, and file
Form SS-8 on or before the date you file your tax return.
A I filed Form SS-8 and received a determination letter stating that I am an employee of this firm.
C I received other correspondence from the IRS that states I am an employee.
G I filed Form SS-8 with the IRS and haven’t received a reply.
H I received a Form W-2 and a Form 1099-MISC and/or 1099-NEC from this firm for 2022. The amount on Form
1099-MISC and/or 1099-NEC should have been included as wages on Form W-2. (Don’t file Form SS-8 if you
select reason code H.)

Reason Code H is the closest, but the employer only send a W2 without the cash gift amount included in the totals.

Yet the 8919 instructions say both a W2 and another form are needed to select Code H.  ("Enter reason code H if you received both a Form W-2 and a Form 1099-MISC and/or 1099-NEC from the firm and the amount on the Form 1099-MISC and/or 1099-NEC should have been included as wages on Form W-2 as an amount you received for services you provided as an employee.") 

This part confuses me. Maybe I have to use a different form to report this cash gift instead of Form 8919?

This is a side hustle at a very small company. If I bother them to create a 1099-MISC then that will be the end of further cash gifts.     

Suggestions please.  Thank you.

[MDM]

This is a side hustle at a very small company. If I bother them to create a 1099-MISC then that will be the end of further cash gifts.     

If you are not this company's employee, then the income would go on Schedules C and SE.

[MustacheAndaHalf]

Reason Code H is the closest, but the employer only send a W2 without the cash gift amount included in the totals.

Can you ask your employer to send a corrected W-2 that includes the cash gift?

[Michael in ABQ]

We gave our part-time employee a $100 cash bonus for Christmas. It came out of petty cash so that's how I'll report it to our bookkeeper as a business expense (misc. labor, just like if we pay our kids $5 to clean up around the office). However, I'm definitely not going to go through the headache of amending her W-2. The whole reason we gave cash with a card was it feels a lot more meaningful than just a bit extra on a bimonthly direct deposit.

[dandarc]

Most payroll software allows you to input "non-cash compensation" in some way or another - seems like a business should be handling that way. That way the W-2 will wind up correct and withholding would be adjusted appropriately (probably best for relatively small amounts because of this) without having to later correct anything. Hopefully OP's employer does that and then there is nothing out of the ordinary to be done by employee or employer for this.

[dandarc]

I'm also curious how OP knows for sure this isn't on W2? How long ago did this gift happen? Seems awfully early to have received a W-2 for this year, and awfully late to be asking this question if it is for a prior year.

[Fields of Gold]

Thank you for the replies so far. 

I'm also curious how OP knows for sure this isn't on W2? How long ago did this gift happen? Seems awfully early to have received a W-2 for this year, and awfully late to be asking this question if it is for a prior year.

 
In the past, I have also received some cash appreciation gifts.  Yesterday I did some reading and learned that these small cash gifts are fully taxable.  (I will amend previous returns.)  I also expect this year's small cash gift not to be included on 2022's W2.  I want to correctly report these cash gifts on tax forms going forward.
 

This is a side hustle at a very small company. If I bother them to create a 1099-MISC then that will be the end of further cash gifts.     

If you are not this company's employee, then the income would go on Schedules C and SE.

I am a direct employee (receive a W2).

We gave our part-time employee a $100 cash bonus for Christmas. It came out of petty cash so that's how I'll report it to our bookkeeper as a business expense (misc. labor, just like if we pay our kids $5 to clean up around the office). However, I'm definitely not going to go through the headache of amending her W-2. The whole reason we gave cash with a card was it feels a lot more meaningful than just a bit extra on a bimonthly direct deposit.

Yes, this ^  My employer was being kind with the cash gifts.  I don't want to have their generosity turn around to bite them: "no good deed goes unpunished." 

Seems like the taxation could be easily handled by me without their involvement; I'm willing to pay the employer's share of the SS/Medicare tax on the cash gift amounts.

I looked at using Schedule C ("Profit or Loss from Business") and SE ("Self-Employment Tax") even though I am not a business proprietor.  Looks like Schedule SE line 8c needs an amount from Form 8919, which put me right back at the proper way to complete Form 8919.  If I use Code H, that could create a headache if IRS requests the missing 1099-MISC or 1099-NEC that I didn't mail with the return.

[MDM]

Seems like the taxation could be easily handled by me without their involvement; I'm willing to pay the employer's share of the SS/Medicare tax on the cash gift amounts.

I looked at using Schedule C ("Profit or Loss from Business") and SE ("Self-Employment Tax") even though I am not a business proprietor.  Looks like Schedule SE line 8c needs an amount from Form 8919, which put me right back at the proper way to complete Form 8919.  If I use Code H, that could create a headache if IRS requests the missing 1099-MISC or 1099-NEC that I didn't mail with the return.

If you use Sch. C & SE, consider ignoring 8919 altogether.  If your "non-W2" income is over $433 you will be paying both your and the employer's share of that income.  If the amount is less than or equal to $433, it's starting to become not worth bothering about....

[Fields of Gold]

Seems like the taxation could be easily handled by me without their involvement; I'm willing to pay the employer's share of the SS/Medicare tax on the cash gift amounts.

I looked at using Schedule C ("Profit or Loss from Business") and SE ("Self-Employment Tax") even though I am not a business proprietor.  Looks like Schedule SE line 8c needs an amount from Form 8919, which put me right back at the proper way to complete Form 8919.  If I use Code H, that could create a headache if IRS requests the missing 1099-MISC or 1099-NEC that I didn't mail with the return.

If you use Sch. C & SE, consider ignoring 8919 altogether.  If your "non-W2" income is over $433 you will be paying both your and the employer's share of that income.  If the amount is less than or equal to $433, it's starting to become not worth bothering about....

Thank you.  I completed a quick draft of all IRS forms, ignoring Form 8919.
Reporting the cash gift involves specific entries on Schedule C, Schedule 1 (part 1 line 3 and part 2 line 15), Schedule SE, and Schedule 2. 

I see that Schedule SE line 13 provides a 50% deduction of the self-employment tax (which is about 92.35% * 15.3% of the cash gift amount).  This means my AGI (especially the ordinary income amount) will be reduced by that 50% amount.  But this small deduction is unlikely to actually lower my ordinary income tax amount.

Here is an article about the 92.35% figure:  https://www.dinesentax.com/why-is-self-employment-tax-based-on-92-35-of-self-employment-income/

[MDM]

The $433 is one of the "cliffs" in the tax code.  Actually $433 puts you "over the cliff" while $432 keeps you just short.  This particular cliff is found on line 4c of Schedule SE. 

If (Sch. C net income) * 0.9235 < $400, no SE tax is due.

If (Sch. C net income) * 0.9235 >= $400, SE tax is due.  But it's not a huge cliff.  Lines 10 and 11 calculate the SS and Medicare tax separately, and those are added to get the SE tax on line 12: 12.4% * $400 = $50, 2.9% * $400 = $12, and that's a $62 cliff.

[ToTheMoon]

As someone who does payroll, I want to tear my hair out when employers hand out bonus cheques, but don't mention it until the last pay period of the year has passed.

After two years, I finally have the managers trained to tell me BEFORE the last pay of the year. When I run the payroll I can add the bonus, all the taxes get calculated, then there is usually a Net Pay Deduction line (or something to that effect) where I enter the amount of the cheque they are handing out.

This has the effect of employees getting a cheque in hand for the bonus, but the tax on it has already been deducted from their pay, so no fussing with extra forms is required at tax time.

With larger amounts this might not work as well, but for smaller amounts this takes care of it.

I know this doesn't help the OP's current situation, but it isn't terribly difficult to avoid this!

[dandarc]

I see what you're saying - you learned this should have been taxed, checked past stuff and found out that it wasn't, so now you're both considering amending prior returns and also expecting same thing to happen again this year. If you've got a check left for 2022, might be really helpful to your employer to bring this up right now - they might be able to fix it and then your W2 will be correct.

As the employee, the odds of being called on this by the IRS are very low. Heck - as the business the odds of being called on it aren't that high. I personally wouldn't be amending any prior tax returns over maybe a few hundred bucks that the employer screwed up reporting. But I can understand wanting this to be 100% right and you might have other reasons to be pro-active about this.