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Supplemental Wages vs Regular Wages

Example: Supervisor tells payroll a few weeks after the check date that the employee forgot his badge and is owed 8 more hours of pay, paid immediately.

After reading through the "APA - Payroll Source" and looking the the referenced IRS regulations, I am confused whether this payment should be taxed as supplemental wages or not.



  • Retro pay is defined as supplemental pay according to IRS Publication 15.

    I would have the employee provide an updated time card for the supervisor to approve.

    Since this the supervisor is requestiong a separte check, I believe you need to use the 25% Federal Withholding rate. If you add to the next pay check, you wouldn't need to do the 25%.
  • Personally, I'd do a "was paid, should be paid". But that's just me.
  • Totally agree with Patty.

    And you never "need to use the 25% Federal Withholding rate". It is an option, not a requirement.
  • Since the work was done in a different pay period than the one during which it is paid, it is supplemental pay - however, if it is paid "immediately" in a separate check, the amount can be added to the previous pay period amount (the one which was short?) and the withholding figured on the aggregate amount. Or, it can be added to the amount to be paid during the current period (if known) and the withholding calculated on that aggregate amount, Or the flat 25% rate may be used (Thanks Mindy - it is optional and never "required"). UNLESS --- the mandatory flat rate applies. Then you MUST withhold a flat 35% of the gross amount of the payment or portion of the payment that exceeds $1 million when combined with all other supplemental wage payments made to that employee during the calendar year. Then no other method of computing withholding is allowed. And that's the truth :P (Phhhbbbbtttt)

    Except for the last part about the mandatory flat rate - adding the pay to the shorted pay period and computing what the withholding should have been would treat the additional amount as if it were regular pay during that pay period. The result is the same as what should have happened. I think this is what Pattypa meant by "was paid, should have been paid". What makes it "supplemental" is the separate check paid during a different pay period. The only difference defining it as supplemental makes is that now it must be tracked for purposes of determining if and when the employee has received more than $1 million in supplemental pay during the calendar year.
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