This is a reminder to USPS® employees that the percentages used to tax supplemental wages are different from the normal taxation percentages. Supplemental wages may include but are not limited to the following:
n Annual leave exchange,
n Awards,
n Back-pay awards,
n Prizes,
n Severance pay, and
n Reimbursements for nondeductible moving expenses.
Effective January 1, 2005, the American Jobs Creation Act of 2004 and section 31.3402(g)-1 of Internal Revenue Service (IRS) regulations created a 2-tiered taxation rate for supplemental wages. These regulations apply to all supplemental payments received by USPS employees in the United States and U.S. territories.
The passage of the Tax Cuts and Jobs Act of 2017 (H.R.1. – 115th Congress) amended the Internal Revenue Code to reduce supplemental rates and modify policies; the income tax rate for supplemental wages decreased on or after January 1, 2018.
Current regulations include the following:
n Taxation of supplemental wages up to a total of $1 million within a calendar year at a mandatory withholding rate of 22 percent.
n A mandatory withholding rate of 37 percent (or the highest rate of income tax for the year) for any supplemental wages paid in excess of $1 million within a calendar year.
These regulations remain in effect until Congress and the IRS once again change taxation percentages.
— Payroll, Controller, 1-16-20
