Workers Are Getting a $10 Million 401(k) Windfall, but a Cash Bonus Could Put Social Security Checks at Risk
Williams-Sonoma split a $200 million windfall with workers, but the way it structured the reward makes a surprising difference for employees already collecting Social Security before full retirement age.
Williams-Sonoma (NYSE:WSM | WSM Price Prediction) got back roughly $200 million in tariff refunds after the Supreme Court struck down those tariffs in February. It decided to share some of that money with its workers. The retailer is putting $10 million toward a one-time contribution to some employees’ 401(k) accounts. President and CEO Laura Alber explained the choice on the earnings call: “We’re so appreciative to have the money back and to be able to reward our employees with part of it.”
A cash bonus is money employees can spend now. An employer’s 401(k) contribution builds retirement savings instead. One group has more riding on it: people who started Social Security before full retirement age (FRA) and kept working.
Imagine a hypothetical employee named Linda. She’s in her early 60s, collecting $2,000 a month from Social Security while making $22,000 a year at a part-time job. Now suppose her employer gives her a $5,000 reward. On paper, a cash bonus and a 401(k) deposit of that size look equal. Social Security views them very differently.
Why a 401(k) Deposit and a Cash Bonus Land in Different Buckets
When an employer pays money directly into a qualified retirement plan, Social Security doesn’t count it as wages. Payments made to a tax-exempt retirement trust under the tax code’s plan rules are not wages. Williams-Sonoma’s quarterly filing calls its award a discretionary 401(k) contribution, which is the employer-funded kind.
Cash bonuses are treated the other way. Social Security’s earnings test counts all pay for occasional and regular bonuses. Incentive awards and outstanding-work awards count too.
Here’s the detail that trips people up. Putting your own bonus into a 401(k) doesn’t keep it out of the earnings test. It remains wages, subject to Social Security and Medicare taxes, even when payroll sends it straight to the plan. A separate contribution funded by the employer gets different treatment.
Where a $5,000 Bonus Costs Linda a Check
In 2026, if you’re under the age for full benefits all year, Social Security deducts $1 from your benefits for every $2 you earn above $24,480.
Linda’s wages are below that limit. A cash bonus raises them to $27,000, which puts her $2,520 over.
That means Social Security would hold back $1,260 of her benefits. The agency usually collects by withholding entire monthly checks, so Linda would most likely lose one full check. The extra $740 would be paid back to her later.
If the same money goes into her 401(k) as an employer contribution, her taxable wages stay where they were and every check arrives on time.
At FRA, Social Security adjusts Linda’s monthly benefit to credit months affected by earnings-test withholding. That raises future checks without guaranteeing she gets every withheld dollar back. A missing check can still hurt on a tight monthly budget.
Find Out Which Year the Bonus Was Earned For
A cash bonus genuinely earned in an earlier year may belong to that year’s earnings total. A payment received after retirement may also qualify for special treatment if she completed everything required to earn it before stopping work. But thanking employees for last year’s efforts does not, by itself, establish when a new bonus was earned. The agreement and employer’s records matter.
Before You Count on the Windfall, Ask How It Was Paid
When your employer announces a reward, find out exactly how it’s being paid before you estimate any withholding. Ask HR whether it’s an employer retirement contribution or cash. Then check Box 3 of your W-2, which shows earnings subject to Social Security tax. That box is the best picture of how payroll actually recorded the money.
If a bonus is really for earlier work, tell Social Security. The agency may not know some of your earnings are special payments unless you tell them. Linda’s reward can build her retirement savings without interrupting her Social Security. But putting her own cash bonus into a 401(k) won’t produce the same result.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
