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.
With the passage of the American Taxpayer Relief Act of 2012 (H.R.8), the marginal income tax rate for high-income taxpayers was increased for wages paid on and after January 1, 2013.
Current 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. Regulations also provide for a mandatory withholding rate of 39.6 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 regulations remain in effect until taxation percentages are once again changed by Congress and the IRS.
— Payroll,
Controller, 12-25-14
