Federal and State Withholding for Supplemental Wage Payments

 

When employees receive payments from an employer that are not part of their ordinary wages, there is a special rule that may be applied to withhold Federal and Oregon State income tax from those payments. Such payments are known as "supplemental wages" and may be paid at the same time as regular wages or at any other time.  IRS Reg. §31.3402(g)-1; IRS Pub. 15, Circular E, Employer's Tax Guide.

The current rate for supplemental wages up to $1M is 22% for Federal and 8% for Oregon State.  For supplemental wages above $1M the Federal rate increases to 37%.

Supplemental wages include the following:

  • bonuses, prizes, and awards
  • commissions
  • backpay awards
  • retroactive pay (for rate increase, merit increase, promotion or reclassification)
  • severance or dismissal pay
  • payments for unused annual leave
  • tips
  • payments for working during vacation
  • reimbursements for nonqualified moving expenses
  • reimbursements for business expenses under a non-accountable plan

Earn codes that use the supplemental rate:

  • FAC      Awards, Cash
  • FAN      Awards, Non-Cash
  • FMC     Moving Expenses, Cash
  • FMN     Moving Expenses, Non-Cash
  • GRP     Salary, Retroactive Payment (GE retro salary or level increases)
  • LPC      Comp Time, Exempt Paid
  • LPV      Vacation Leave Paid
  • RRP     Regular, Retroactive Payment (Classified merit increase, promotion or reclassification)
  • SRP     Salary, Retroactive Payment (Unclassified retro salary increases)