To define Supplemental Wages, the earnings codes classified as Supplemental Wages and the methods for withholding income taxes from Supplemental Wages
All employees paid Supplemental Wages
Supplemental Wage payments as well as income tax withholding methods to be applied to Supplemental Wages are discussed in:
- IRS Publication 15, Section 17 - How To Use the Income Tax Withholding Tables
- 26 Code of Federal Regulations 31.3402(g)-1
“Supplemental wages are all wages paid by an employer that are not regular wages. They include, but are not limited to, bonuses, overtime pay, payments for accumulated sick leave, severance pay, awards, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Supplemental wages include wage payments made without regard to an employee's payroll period, but also may include payments made for a payroll period.”
“As distinguished from Supplemental Wages, regular wages are amounts that are paid at a regular hourly, daily, or similar periodic rate (and not an overtime rate) for the current payroll period or at a predetermined fixed determinable amount for the current payroll period. Thus, among other things, wages that vary from payroll period to payroll period … are not regular wages.”
Treasury (IRS) Regulations section 31.3402(g) -1(a)(1)(iv) provide an option for overtime pay to be treated as regular wages. Pursuant to this section, OSC will treat overtime pay as Regular Wages.
Classification of Earnings Codes
All earnings codes within PayServ have been reviewed to determine if they should be classified as Supplemental Wages pursuant to IRS requirements. The attached document identifies earnings codes that have been classified as Supplemental Wages to date. OSC will update this document, as needed, and make it available to agencies.
Income tax withholding on Regular Wages is calculated and withheld from paychecks using the Percentage (Annualized) Method (see IRS Publication 15, Section 17 - How To Use the Income Tax Withholding Tables).
The IRS identifies two allowable income tax withholding methods for Supplemental Wages:
- Optional Flat Rate Method
- Aggregate Method
Optional Flat Rate Method applies a flat rate percentage (25% for Federal, 9.62% for NYS, 4.25% for NYC, 1.61135% for Yonkers Residents and 0.5% for Yonkers Non-Residents) to the Supplemental Wages to calculate the tax withholding.
Aggregate Method combines regular and Supplemental Wages to calculate the tax withholding (see calculation in IRS Publication 15, Section 7 – Supplemental Wages).
NOTE** We are researching whether additional amounts in taxes are being consistently withheld from Supplemental Wages in separate checks. We will communicate the results of our research once we have more information.
- Make available to agencies, all earnings codes classified as Supplemental Wages
- Update the configuration in PayServ to reflect the Supplemental Wage income tax withholding methods indicated above.
- Use the Aggregate method to calculate Federal, New York State, and New York City income tax withholding on Supplemental Wages.
- Use the Flat-Rate method to calculate Yonkers income tax withholding regardless of whether Supplemental Wages are paid with Regular Wages or in a separate check.
|Flat Rate based on the Resident/Non-Resident Status
(Resident – 1.61135% and Non-Resident – 0.50%)
Attached are examples of income tax withholdings on Supplemental Wages. They demonstrate the differences among the various methods explained above as well as the variances between Supplemental Wages paid with Regular Wages and those paid in a separate check.
When Supplemental Wages are paid in the same check as Regular Wages, there is no income tax withholding difference between the Annualized and the Aggregate methodologies.
Beginning with the Institution Pay Check dated June 8, 2017 and thereafter
Payroll officers should become familiar with the differences between Regular Wages and Supplemental Wages and the differences between Flat Rate and Aggregate withholding methodologies to address questions.
Payroll officers should also become acquainted with IRS Form W-4 and New York State Form IT-2104 (Employee's Withholding Allowance Certificates) and how completion of these forms affect employee income tax withholding.
Agencies should ensure that new employee Local Tax Data pages are correctly entered in PayServ and that New York City and Yonkers check boxes reflect the proper residency.
OSC is not permitted to provide tax advice to Agencies, employees or other third parties. Employees should be advised to consult with their tax advisor if they have any questions concerning Supplemental Wages.
Questions from payroll officers regarding this bulletin may be emailed to the Tax and Compliance mailbox.