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Judy Brooke-Gomez - Director of Tax Research & Support


Supplemental Wages


Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances undercertain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a 22% flat rate under certain circumstances as explained in the section on supplemental wages in IRS Pub. 15.

Expense allowances

Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses.

Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you don’t return the excess payments within a reasonable
period of time.


Accountable plan 

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the
following rules.
• Your expenses must have a business connection. That is, you must have paid or incurred deductible expenses while performing services as an employee of your
employer.
• You must adequately account to your employer for these expenses within a reasonable period of time.
• You must return any excess reimbursement or allowance within a reasonable period of time.
An excess reimbursement or allowance is
any amount you are paid that is more than the
business-related expenses that you adequately
accounted for to your employer.
The definition of reasonable period of time
depends on the facts and circumstances of
your situation. However, regardless of those
facts and circumstances, actions that take
place within the times specified in the following list will be treated as taking place within a reasonable period of time.
• You receive an advance within 30 days of
the time you have an expense.
• You adequately account for your expenses
within 60 days after they were paid or incurred.
• You return any excess reimbursement
within 120 days after the expense was paid
or incurred.
• You are given a periodic statement (at
least quarterly) that asks you to either return or adequately account for outstanding
advances and you comply within 120 days
of the statement.

Nonaccountable plan

Any plan that does not meet the definition of an accountable plan is
considered a nonaccountable plan.  For more information about accountable and nonaccountable plans, see chapter 6 of Pub.
463, Travel, Entertainment, Gift, and Car Expenses.

 


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FYI...  All our calculators are able to address Supplemental withholding rates. Note that Supplemental is an option in the Federal Filing Status field.