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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 Pay for performance,
n Back-pay awards,
n Prizes,
n Terminal leave, and
n Severance pay,
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.
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 22 percent. Regulations also provide for 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 dollars within a calendar year. These regulations remain in effect until taxation percentages are once again changed by Congress and the IRS.
In addition, some states and localities use supplemental withholding rates. If this is the case for your state or locality, the applicable state or local percentage is applied to tax the supplemental wages. The state or locality determines the rate, and they may change every year.
— Payroll,
Controller, 3-7-24
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