IRS Provides Guidance on Proper Income Tax Withholding for Nine Common Supplemental Wage Payment Scenarios

In
Revenue Ruling 2008-29, the IRS has provided specific guidance on the
proper amount of federal income tax an employer must withhold in nine
different situations under the supplemental wage regulations¹
that became effective January 1, 2007. Typically, states with income
taxes default to following federal regulation principles for
distinguishing between regular and supplemental wages. In addition to
federal income tax withholdings, states also look for proper
withholding on supplemental wages for state income tax purposes.

The Revenue Ruling addresses the following nine scenarios:

1. Commissions paid at fixed intervals with no regular wages paid to the employee;


2. Commissions paid at fixed intervals in addition to regular wages paid at different intervals;


3. Draws paid in connection with commissions;


4. Commissions paid to the employee only when the accumulated
   commission credit of the employee reaches a specific numerical
   threshold;


5. A signing bonus paid prior to the commencement of employment;


6. Severance pay paid after the termination of employment;


7. Lump sum payments of accumulated annual leave paid at termination of employment;


8. Annual cash-out payments of vacation and sick leave; and


9. Sick pay paid at a different rate than regular pay.

See the full details at:

http://www.littler.com/presspublications/index.cfm?event=pubItem&pubItemID=19212&childViewID=395&type=all&section=Press%20&%20Publications&subject=ASAPs&title=IRS%20Provides%20Guidance%20on%20Proper%20Income%20Tax%20Withholding%20for%20Nine%20Common%20Supplemental%20Wage%20Payment%20Scenarios