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. Effective January 1, 2005, 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. These regulations apply to all supplemental payments received by USPS employees in the United States, as well as the U.S. territories.
These regulations apply to taxation of supplemental wages up to a total of 1 million dollars within a calendar year at a mandatory withholding rate of 25 percent. Regulations also provide for a mandatory withholding rate of 35 percent (or the highest rate of income tax for the year) for any supplemental wages paid in excess of 1 million dollars within a calendar year. These remain in effect until taxation percentages are changed by Congress and the Internal Revenue Service.
With the passage of the American Taxpayer Relief Act of 2012 (H.R. 8), the marginal income tax rate for high-income taxpayers will increase to 39.6 percent for wages paid on and after January 1, 2013. The rate for supplemental wages up to a total of 1 million dollars will remain 25 percent for 2013. However, the rate on supplemental wages in excess of 1 million dollars will increase to 39.6 percent for 2013.
— Payroll,
Controller, 1-24-13
