Open Forum

Valerie Atkins, CPP posted 05-22-2024 15:15

Severance does not have to be paid as a lump sum for it to be supplemental wages.  Per the IRS Publication 15 (Circular E) on Supplemental Wages, "Supplemental wages are wage payments to an employee that aren't regular wages".  The amount paid at the salary rate for 17 pay periods probably should not be labeled as salary.

Dennis Pearson posted 05-22-2024 17:35

And there is no reason to spend resources trying not to use supplemental rate when it seems to be clearly allowed. Where possible, it should be tracked not as earned/hourly/salary, to avoid/reduce WC, UI, etc.

Supplemental may actually help the former EE with their liability, especially if they find other work/income during the 17 pay periods (if you are inclined to worry about such things).

Howard Goldman, CPP posted 05-22-2024 23:28

I used to pay this as a "salary continuation" or "severance continuation" earning type, to differentiate it from ordinary salary paid to an active employee.  In this situation I did not use the optional flat 22% withholding rate.  Instead, I used the aggregate method of adding to regular wages (none in this situation) and calculating withholding based on the employee's W-4 and regular biweekly pay frequency -- the end result being that withholding from the biweekly continuation pay is the same as that from the previous biweekly salary.

Anonymous Member posted 05-23-2024 12:44

This message was posted by a user wishing to remain anonymous

I might be stressing the obvious, but it is never required to use the 22% supplemental flat withholding rate.  The only requirement is that supplemental wages over $1M must be taxed at the 37% flat rate.  Up until you get to $1M, you are welcome to use the W-4 rates for supplemental withholding (and as Howard mentioned, it's the aggregate rate but since "regular" wages are 0, it's essentially just using the normal tables).

Dennis Pearson posted 05-23-2024 12:47

"it is never required to use the 22% supplemental flat withholding rate"

Likely the case, but sometimes it is a good parting shot when an allowed option. Employers sometimes have different motives than just the easiest compliant method.