Understanding Supplemental Tax Calculations

This topic discusses:

  • Two-tiered U.S. federal supplemental tax rates.

  • Supplemental Tax Methods.

Two-Tiered U.S. Federal Supplemental Tax Rates

Any supplemental wage payments paid after an employee's YTD taxable supplemental payments have exceeded $1 million during the calendar year must be taxed at a higher federal supplemental tax rate.

Create a special accumulator code to store each employee's taxable gross for supplemental payments to identify the correct point at which the higher federal supplemental withholding tax rate should be applied. Enter this special accumulator on the Earnings Table - Special Process Page with T selected in the Effect on Special Balance field for each earnings code identified as using the supplemental tax method.

If you have multiple companies, you must use the same special accumulator for every company's supplemental earnings. This setup enables the system to make the determination of whether an employee’s annual supplemental wage payments have exceeded $1 million across all companies (active or inactive), regardless of whether Common Paymaster functionality has been invoked among the companies. As long as companies share the same calendar year balance ID, the YTD earnings balances for all companies is evaluated to determine which federal supplemental rate should be applied. There is no special setup required on the Company Table.

See Establishing Special Accumulator Codes.

Note:

If you did not specify the supplemental payment special accumulator for all supplemental earnings codes, you can run the 2 Tiered Supplemental Adjustment Program SQR report (TAX5162T) to correct the special accumulator balances.

See (USA) TAX5162T – Two-Tiered Supplemental Adjustment Program

Supplemental Tax Methods

PeopleSoft Payroll for North America tax processing supports the various tax calculation methods required by some states for supplemental earnings, including the use of aggregate tax methods.

The methods used for calculating withholding tax on supplemental payments may differ depending on the following criteria that you specify on the Federal Tax Table - General page:

Term Definition

Paid With Regular Wages

The employee receives a supplemental payment paid with regular wages.

Separate Payment

The employee receives a supplemental payment as a separate payment.

PeopleSoft delivers the required value in these fields for each state. The possible values are:

  • Aggregate − No Annualize

  • Aggregate

  • Aggregate − No Tax else Percent

  • Percent of Taxable Gross

  • Special Table with Exemptions

  • Special Table

  • Non-Resident Supplemental

This topic provides an explanation and examples of each of these methods.

Note:

PeopleSoft uses the term "normal wages" to mean the employee's pay from regular (REG) earnings taxed using the annualized tax method.