Employers mulling how to properly withhold income taxes from certain supplemental wages paid to an employee may be interested in recent guidance from the Internal Revenue Service (IRS).
In Revenue Ruling 2008-29 [Internal Revenue Bulletin 2008-24], IRS discusses income tax withholding in nine different situations involving the payment of supplemental wages:
Commissions paid at fixed intervals with no regular wages paid to the employee
Commissions paid at fixed intervals in addition to regular wages paid at different intervals
Draws paid in connection with commissions
Commissions paid to the employee only when the accumulated commission credit of the employee reaches a specific numerical threshold
A signing bonus paid prior to the commencement of employment
Severance pay paid after the termination of employment
Lump sum payments of accumulated annual leave
Annual payments of vacation and sick leave
Sick pay paid at a different rate than regular pay
