Compensation for Services

Ordinary rates, and — with important exceptions — payroll tax.

Wages and Salary

Regular employee compensation. Subject to federal, state, and local income taxes plus FICA — 6.2% Social Security up to the wage base and 1.45% Medicare with no cap, matched by your employer, plus the 0.9% Additional Medicare Tax above $200,000 single / $250,000 joint. Note that “wages” is defined differently for income tax withholding ( IRC §3401(a)) than for FICA ( IRC §3121(a)), which is why your W-2 Box 1 and Box 3 rarely match. References: IRS Pub. 15, “Employer’s Tax Guide”, IRS Pub. 17, “Your Federal Income Tax”.

Bonuses

Performance-based compensation. Often paid in cash or equity instruments such as restricted stock units (RSUs) or stock options. Taxed as ordinary income upon receipt or exercise. References: IRS Topic No. 401 - Wages and Salaries, IRS Pub. 525, “Taxable and Nontaxable Income”.

Self-Employment Income

Earnings from operating a business as a sole proprietor or independent contractor. Reported on Schedule C of Form 1040, often following receipt of Form 1099-NEC. Subject to self-employment tax under IRC §1401 but eligible for business deductions. References: IRS Schedule C, Form 1099-NEC, IRS Guide to Business Expense Resources.

Honoraria

Payments for professional services rendered nominally without charge, such as academic lectures. Ordinary income; whether self-employment tax applies turns on whether the activity is regular and continuous enough to be a trade or business. Reference: IRS Pub. 525.

Farming and Fishing Income

Income from agricultural or commercial fishing operations. Eligible for income averaging and a relaxed estimated-tax schedule unavailable to other trades (section “Farming and Fishing Income”). References: IRS Pub. 225, “Farmer’s Tax Guide”, Schedule F (Form 1040).

Tips and Commissions

Performance- or service-based gratuities. Subject to income tax and FICA. References: IRS Topic No. 761, IRS Pub. 531, “Reporting Tip Income”.

Deferred Compensation

Wages earned now but received in a later year. Taxed when paid or when no longer subject to a substantial risk of forfeiture, not when earned. Non-qualified plans under IRC §409A are covered later in this chapter.