What expense category do bonuses come under?

Not sure where to categorize employee bonuses in your expenses? You're not alone. Understanding how to classify bonuses can help you keep your financial records accurate and make smarter business decisions.

Classifying bonus expenses

Bonuses are generally part of employee compensation and should be recorded under payroll expenses on your income statement. Here's how you can categorize them:

• Compensation expense: Include bonuses with salaries and wages—they're additional pay for your team.
• Operating expenses: If bonuses are tied to operational goals, you might classify them here. Learn more about operating expenses.
• Administrative expenses: For company-wide performance bonuses, they could be grouped with administrative costs.

Examples of bonus expenses

• Performance bonuses: Extra pay when your employees meet or exceed goals.
• Holiday bonuses: A little something extra during the holidays to show appreciation.
• Retention bonuses: Offered to key team members to encourage them to stay.

For example, if you give your sales manager a $5,000 bonus for surpassing annual targets, you'd categorize this under compensation expense in your payroll.

Tax implications of bonus expenses

When handling taxes, bonuses keep tee important tax implications in mind:

• Tax deductions: You can usually deduct bonuses as they're ordinary business expenses.
• Payroll taxes: Bonuses are subject to payroll taxes and need to be reported on your employees' W-2 forms.
• Timing matters: Pay bonuses within the tax year to claim deductions for that year.

Let Ramp automate your expense process

Managing bonuses and other expenses can be simpler. Ramp automates categorization, tracking, and management of your expenses, so you can keep your finances organized without the headache. Let Ramp handle the details while you focus on growing your business.