Finance

Federal Taxation Percentage Rate for Supplemental Wages

Postal Service™ 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 the following:

n Annual leave exchange.

n Pay for performance.

n Back-pay awards.

n Prizes.

n Terminal leave.

n Severance pay.

Effective January 1, 2025, the American Jobs Creation Act of 2004 and Section 31.3402(g)-1 of 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 taxation of supplemental wages up to a total of 1 million dollars within a calendar year at a mandatory withholding rate of 22 percent. These regulations remain in effect until Congress and the IRS change the taxation percentages.

State and local supplemental tax rates are also applicable if a supplemental rate exists. The state or locality determines the rate, and the rate may change every year.

— Payroll,
Controller, 2-20-25