Jason's employer pays year-end bonuses each year on December 31. Jason, a cash-basis taxpayer, would prefer not to pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus). So, he leaves town on December 31, 2019, and has his daughter, Julie, pick up his check on January 2, 2020. Who reports the income and when?

Question

Quizplus · Accepted Answer

Since Jason is a cash-basis taxpayer, he reports income when he actually receives the payment. Even though he did not physically receive the bonus on December 31, it was still constructively received because it was made available to him. Therefore, he must report the income in 2019, even though his daughter picked up the check on January 2, 2020. Julie does not have to report the income because she did not earn it.

Jason's Employer Pays Year-End Bonuses Each Year on December 31