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USPS® 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, annual leave exchange, awards, back-pay awards, prizes, severance pay, and reimbursements for moving expenses. The American Jobs Creation Act of 2004 and Section 31.3402(g)-1 of IRS regulations created a two-tiered taxation rate for supplemental wages that was effective as of January 1, 2005. These regulations apply to all supplemental payments received by USPS employees in the contiguous United States, Guam, the Northern Marianas, Puerto Rico, and the United States Virgin Islands.
These regulations provide for taxation of supplemental wages up to a total of 1 million dollars within a calendar year at a mandatory withholding rate of 25 percent. They also provide for a mandatory withholding rate of 35 percent for any supplemental wages paid in excess of 1 million dollars within a calendar year. These rates will remain in effect until taxation percentages are changed by Congress and the IRS.
— Payroll,
Controller, 1-29-09
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