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Aggregate method to calculate withhold

Does anyone know if any states mandate the use of the aggregate method when calculating bonus tax withholding? Your time and assistance is much appreciated.

Comments

  • The aggregate method is the default method for most states. Under the aggregate method, all compensation paid during the pay period is combined or aggregated to compute the total withholding required for the pay period. Some states also identify a flat rate for withholding on supplemental pay, but usually also provide that the supplemental may can be combined with regular pay and the tax computed as if it were a single payment (aggregate method). States that do not have graduated tax rates usually allow their flat rate to be applied to gross supplemental pay. Other states have withholding computations that are specified as flat rates. For example PA applies a flat rate to gross pay for all payments (regular or supplemental). GA applies graduated supplemental pay withholding rates based on annual gross pay:
    If the annual income is... withhold at a rate of...
    under $8000………….…...………….2%
    $8000-$10,000…………....…….……3%
    $10,001-$12,000……………………...4%
    $12,001-$15,000……….……….….…5%
    over $15,000…………...….…….....5.75%

    In any case, what the aggregate method is intended to avoid is insufficient withholding due to applying withholding exemptions, and in the case of graduated rates, the lower tax brackets, to both the regular pay and supplemental pay during the same pay period. For example, if there are three allowances allowed for state purposes, withholding computed separately for regular pay and supplemental pay without aggregation effectively applies six allowances for the pay period.

    For example, monthly pay period, 3 allowances at $100/month = $300. Employee is paid $ 2,400/ month and receives a 3,000 bonus during the month. Aggregate method computes tax on $5,200-$300 = $4,900.
    Separate payment without aggregation computes tax on $2,400-$300 = $1,900 and $3,000 - $300 = $2,700 for a total of $4,600.

  • Patrick, thank you for your response. Understand the aggregate when used generally results in a different tax result. I was looking for documentation stating the aggregate method "must" be used. I have pulled info from BNA and have run other searches and have not find any state "mandating" the aggregate method, Or stating it is the default method. When reviewing the bonus setup on the payroll system, some states are setup with aggregate, others set to supplemental. States with flat rates are not a concern. It is may practice to provide supporting documentation for my answers when asked a question. When calculating tax on 6 or 7 figures bonuses the difference in the two methods can be significant. Want to ensure we have the proper answer for employees.

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