Section 14: SUPPLEMENTAL WAGE PAYMENTS INCLUDING TIPS


If you pay supplemental wages, such as bonuses, commissions, overtime, back pay (including retroactive wage increase), or reimbursements for non-deductible moving expenses in the same payment with regular wages, withhold the income tax as if the total of the supplemental and regular wages were a single wage payment for the regular payroll period.

If you pay supplemental wages in a different payment from the regular wages, the method for computing withholding tax is as follows:

1. Annualize the employee’s regular wages and compute the tax on this amount.

2. Annualize the regular wages and add the supplemental wage to this amount. Compute tax on this amount.

3. Subtract the difference in the tax amounts.

4. The remainder is the amount to be withheld from the supplemental wage.

Example: A single taxpayer, filing a single return with 1 allowance, earning $500.00 per week receiving a $5,000 bonus.

Without Bonus

 

With Bonus

$26,000.00

Annualized Gross Wages

$31,000.00

   -3,250.00

Minus Standard Deduction

   -3,250.00

$22,750.00

Taxable Income

$27,750.00

       884.00

Tax

    1,153.63

      -110.00

Minus Exemption Credit (1x $110)

      -110.00

     $774.00

Annual Tax

  $1,043.63

 

    $-774.00

 

Amount to be withheld

     $269.63


Example: A married person filing a joint return with 3 allowances, earning $500.00 per week receiving a $5,000 bonus

Without Bonus

 

With Bonus

$26,000.00

Annualized Gross Wages

$31,000.00

   -6,500.00

Minus Standard Deduction

   -6,500.00

$19,500.00

Taxable Income

$29,500.00

       717.00

Tax

       975.00

      -330.00

Minus Exemption Credit (3x $110)

      -330.00

     $387.00

Annual Tax

     $645.00

 

    $-387.00

 

Amount to be withheld

     $258.00


Example: A married taxpayer, filing a separate return with 2 allowances, earning $500.00 per week receiving a $5,000 bonus

Without Bonus

 

With Bonus

$26,000.00

Annualized Gross Wages

$31,000.00

   -3,250.00

Minus Standard Deduction

   -3,250.00

$22,750.00

Taxable Income

$27,750.00

       884.00

Tax

    1,153.00

      -220.00

Minus Exemption Credit (2x $110)

      -220.00

     $664.00

Annual Tax

     $933.63

 

    $-664.00

 

Amount to be withheld

     $269.63


If an employee receives regular wages, and reports tips, determine the income tax to be withheld on the tips as if the amount of tips reported were a supplemental wage payment or you may simply add the tips to the employee’s wages and compute the tax using the prescribed methods. If you have not withheld income tax from the employee’s regular wages, you must add the reported tips, as you would other supplemental wages, to the regular wages you paid within the same calendar year for the current or last preceding payroll period and withhold income tax as though the tips and regular wages were one payment.

An employer must withhold tax on tips to the extent withholding does not exceed wages (not including tips themselves) or from amounts turned over by the employee to the employer to meet the withholding requirement.

If an employee receives vacation pay for a vacation absence, the vacation pay is subject to withholding as though it were a regular wage payment made for the payroll period. If vacation pay is paid in addition to regular wages for the vacation, pay is treated as a supplemental wage payment.

NOTE: Delaware follows federal law defining income subject to withholding. Federal law has been amended to require reporting and withholding on certain non-cash taxable fringe benefits. Employers should be certain to take account of those changes and to properly withhold, for Delaware as well as federal purposes, on those fringe benefits.

Withholding Exemption and Allowances