If you receive commissions and bonuses in addition to your regular salary or wages, you may find that federal income taxes may be withheld at a different rate. This is because the IRS considers commissions and bonuses to be supplemental earnings. A different withholding rate is applied to these supplementary payments, which could be 25%.
In addition to commissions and bonuses, supplementary wages for federal income tax purposes also include overtime pay, poorly accrued. leave, return pay, retroactive pay increases, payment for non-deductible moving expenses, fringe tax benefits, allowance for expenses that are paid under a non-countable account, such as per diems, bonuses and awards, and separation pay. Vacation pay, when paid in addition to the regular salary or vacation pay, is also considered supplementary pay.
The federal withholding tax is based on the regular salary wage bracket tables based on the information that the employer provides to you on the W-IV form According to the IRS, if your employer combines your supplemental wages with your regular salary or wages and you don’t review them separately, you will owe federal tax According to the tables, only one wage bracket should be included.
If the supplementary wages are paid separately or are combined with the regular salary, but are distinguished separately from your salary or from the salary statement, the employer has two options. If your employer has withheld taxes from your regular salary this year or last year, he can withhold tax from the salary to supplement flat 25 %.
Alternatively, the employer can combine the supplementary pay and the amount of pay from the most recent base pay decisions and keep the total amount according to the pay table bracket. The amount of withholding from the most recent base pay statement should be subtracted from the withholding in the gross amount and the difference applied as withholding in the supplemental salary portion.
If you receive subsequent supplemental wages, your employer could use the same method on a cumulative basis, combining current and previous pay with the most recent base pay amount and calculating the total withholding, according to the pay table bracket. Next, add the amount withheld from your most recent base pay and the amounts previously withheld from supplemental payments to pay the amount paid in the current payment of supplemental payments.
If an employee receives over $1 million in supplemental pay during the calendar year, special rules apply. Excesses over $1 million are subject to withholding at a rate of 35% or the total tax rate in effect for that year.
The amount of tax withheld at the end of the year is reported on your W-2 and included in your annual income tax return. If taxable-income”>taxable-income”>the right is based on the year, the excess tax will be withheld according to the supplementary wage withholding requirements. you will receive a refund.
Sources:
Publication 15, (Circular E) Employer’s Tax Guide, IRS
Report:
- How do I adjust my tax withholding? www.irs.gov/pub/irs-pdf/p919.pdf
- How to determine your correct federal income tax withholding: voices.yahoo.com/how-determine-correct-amount-federal-income-5510073.html?cat=3
