Organization Information


Federal Taxation Percentages for Supplemental Wages

USPS® employees are reminded that the percentages used to tax supplemental wages are different from the nor­mal taxation percentages. Supplemental wages may 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, effective January 1, 2005. These regulations apply to all supplemental payments received by USPS employ­ees in the United States, as well as the U.S. territories.

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.