Publication 15 |
2000 Tax Year |
Chapter 7 Supplemental Wages
Supplemental wages are compensation paid in addition to the
employee's regular wages. They include, but are not limited to,
bonuses, commissions, overtime pay, payments for accumulated sick
leave, severance pay, awards, prizes, back pay and retroactive pay
increases for current employees, and payments for nondeductible moving
expenses. Other payments subject to the supplemental wage rules
include taxable fringe benefits and expense allowances paid under a
nonaccountable plan. How you withhold on supplemental payments depends
on whether the supplemental payment is identified as a separate
payment from regular wages.
Supplemental wages combined with regular wages.
If you pay supplemental wages with regular wages but do not specify
the amount of each, withhold income tax as if the total were a single
payment for a regular payroll period.
Supplemental wages identified separately from regular wages.
If you pay supplemental wages separately (or combine them in a
single payment and specify the amount of each), the income tax
withholding method depends partly on whether you withhold income tax
from your employee's regular wages:
- If you withheld income tax from an employee's
regular wages, you can use one of the following methods for the
supplemental wages:
- Withhold a flat 28% (no other percentage allowed).
- Add the supplemental and regular wages for the most recent
payroll period this year. Then figure the income tax withholding as if
the total were a single payment. Subtract the tax already withheld
from the regular wages. Withhold the remaining tax from the
supplemental wages.
- If you did not withhold income tax from the
employee's regular wages, use method b above. (This would
occur, for example, when the value of the employee's withholding
allowances claimed on Form W-4 is more than the wages.)
Regardless of the method you use to withhold income tax on
supplemental wages, they are subject to social security, Medicare, and
FUTA taxes.
Example 1.
You pay John Peters a base salary on the 1st of each month. He is
single and claims one withholding allowance. In January of 2001, he is
paid $1,000. Using the wage bracket tables, you withhold $84 from this
amount. In February 2001, he receives salary of $1,000 plus a
commission of $2,000, which you include in regular wages. You figure
the withholding based on the total of $3,000. The correct withholding
from the tables is $434.
Example 2.
You pay Sharon Warren a base salary on the 1st of each month. She
is single and claims one allowance. Her May 1, 2001, pay is $2,000.
Using the wage bracket tables, you withhold $234. On May 14, 2001, she
receives a bonus of $2,000. Electing to use supplemental payment
method b, you:
- Add the bonus amount to the amount of wages from the most
recent pay date ($2,000 + $2,000 = $4,000).
- Determine the amount of withholding on the combined $4,000
amount to be $714 using the wage bracket tables.
- Subtract the amount withheld from wages on the most recent
pay date from the combined withholding amount ($714 - $234 =
$480).
- Withhold $480 from the bonus payment.
Example 3.
The facts are the same as in Example 2, except that you elect to
use the flat rate method of withholding on the bonus. You withhold 28%
of $2,000, or $560, from Sharon's bonus payment.
Tips treated as supplemental wages.
Withhold income tax on tips from wages or from other funds the
employee makes available. If an employee receives regular wages and
reports tips, figure income tax as if the tips were supplemental
wages. If you have not withheld income tax from the regular wages, add
the tips to the regular wages. Then withhold income tax on the total.
If you withheld income tax from the regular wages, you can withhold on
the tips by method a or b above.
Vacation pay.
Vacation pay is subject to withholding as if it were a regular wage
payment. When vacation pay is in addition to regular wages for the
vacation period, treat it as a supplemental wage payment. If the
vacation pay is for a time longer than your usual payroll period,
spread it over the pay periods for which you pay it.
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