WASHINGTON -- The U.S. Treasury Department said Tuesday employment taxes must be paid, and taxes withheld, on bonuses paid for signing an employment contract.
The Treasury and Internal Revenue Service said the ruling concerns cases involving signing bonuses paid to sports players or payments after union members ratify a new collective bargaining agreement.
A second ruling released involves payments made in connection with the cancellation of an employment contract.
This involves cases when an employment contract is canceled before its term expires and the worker receives a payment in lieu of the remaining period of employment.
In these cases, the payment is treated as wages for purposes of employment taxes and income tax withholding, the Treasury and IRS said.
The Treasury and IRS said the rulings will not apply to certain payments made before Jan. 12, 2005, such as signing bonuses, or other payments related to an employee's initial employment.
