REMINDER

Federal Taxation Percentages for Supplemental Wages

Postal ServiceTM employees are reminded that the percentages used to tax supplemental wages are different from the normal taxation percentages. As information, supplemental wages include, but are not limited to, the following: prizes, awards, back-pay awards, severance pay, and reimbursements for moving expenses. The American Jobs Creation Act of 2004 and Section 31.3402(g)-1 of Internal Revenue Service (IRS) regulations created a temporary two-tiered taxation rate for supplemental wages that was effective as of January 1, 2005. However, these regulations have now been finalized.

The final regulations provide for taxation of supplemental wages up to a total of $1 million within a calendar year at a mandatory withholding rate of 25 percent. The final regulations also provide for a mandatory withholding rate of 35 percent for any supplemental wages paid in excess of $1 million within a calendar year. These rates will remain in effect until Congress and the IRS change the taxation percentages.

— Payroll,
Finance, 10-12-06