Update on Taxation of State Supplemental Payments

The New York state comptroller’s office was recently informed of an Internal Revenue Service ruling which requires Supplemental wage payments including longevity payments, call out bonus, tool allowance, hazardous duty pay, back pay, retroactive wage increases, awards, uniform allowance, unused vacation accruals lump sum, salary deferral lump sum, standby, intermittent inconvenience, step 3 out-of-title grievance payments, and any other payment that is above regular wages, to be processed with a higher withholding rate than regular wages.

Under the regulations, employers have the option to withhold a flat rate of 25% on supplemental wages or use a more complex aggregate method for calculating the withholding that combines regular and supplemental wages according to what you entered on your W-4 for withholding allowances and additional withholding amounts.

To be in full compliance with these IRS rules, the State’s Comptroller’s Office initially determined to use the flat rate 25% method, starting with the April 2017 Longevity Payments. In response to strong objections by CSEA, and after further research by CSEA, the state comptroller has determined that the aggregate method will be used to determine the proper amount of withholding to be taken out of supplemental payments. This method is more beneficial to our members than using the flat 25% rate. However, even with the aggregate method, the withholding will still be significantly more than what has been withheld in the past.

It is important to note that regardless of the tax withholding method used on supplemental payments, an individual’s tax liability is the same at the end of the year. Taxes withheld over and above what a person owes will be refunded when you file your tax returns.

In the meantime an individual can always change their withholding amounts and their claimed withholding allowances on their W-4 prior to the supplemental payments in order to realize more money in the supplemental check. An individual can change their withholding amounts and their withholding allowances as many times as they desire throughout the year in order to capture more money in any supplemental check.

If you have any questions please contact CSEA State Operations at (518) 257-1213.

Mary E. Sullivan, CSEA Acting President

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