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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, annual leave exchange, pay for performance, back-pay awards, prizes, terminal leave, and severance pay. 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 Postal Service employees in the United States, as well as the 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. These regulations remain in effect until taxation percentages are once again changed by Congress and the IRS.
State and local supplemental tax rates are also applicable if a supplemental rate exists. The state or locality determines the rate, and they may change every year.
— Payroll,
Controller, 1-22-26
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