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Concerning supplemental payments, are there alternatives to the optional or aggregate methods for withholding allowed?

One of our employees has a flat Federal amount withheld from regular pay. We are about to pay bonuses and the employee wants a flat amount or $0 withheld. Per the information on-line it appears that we are required to use either the optional flat rate (25% for 2013) or the aggregate method which would basically annualize their bonus and result in an even larger Federal tax withholding. Are there alternatives to using one of these methods for the supplemental and if not, how do we explain the difference to the employee?    

Answers

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

If you don't have access to a payroll advisor through your payroll processing department, you should consider speaking to a lawyer. This could be a very big deal if you follow the wrong path.

At the same time, I would let the employee know what you located in your research and advise them that they will have to provide legally supportable evidence to support their request for a flat or $0 amount.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

We have typically relied on our outside payroll provider that strongly uses a "bonus rate," which is much higher than the percentages you are using. I would default to a higher rate, no matter what an employee tells you. Leverge your payroll provider and end the converation with the employee. Laws need to be followed.

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