University of California, San Diego

June 5, 1996
SUBJECT: Federal Withholding Tax on Supplemental Wages
The Internal Revenue Service Employer's Tax Guide (Circular E), defines supplemental wages as follows: "Supplemental wages are compensation 
     paid to an employee in addition to the employee's regular wages.  They 
     include, but are not limited to, bonuses, awards, prizes, back pay and 
     retroactive pay increases for current employees, and payments for 
     nondeductible moving expenses.  Other payments subject to the 
     supplemental wage rules include taxable fringe benefits and expense 
     allowances paid under a non-accountable plan." The Internal Revenue Service and the State of California Employment Development Department outline two methods for withholding income tax from supplemental wages:
A. Withhold a flat 28% for federal income tax and a flat 6% for
state income tax if supplemental wages are paid separately or with other types of supplemental wages. The absence of the "REG" DOS code payment will cause supplemental wages to be flat taxed.
B. Withhold income taxes according to the employee's Form W-4
provided supplemental wages are paid in addition to regular salary. The addition of the "REG" DOS code payment will allow the payroll system to compute taxes according to regular graduated tax tables.
Clearly this is a major clarification of federal and state tax guidelines that may affect many in the area of tax withholding. The following is a listing of the DOS Codes that have been identified as supplemental wages and have been updated accordingly:
DOS Code Description
ADL Additional Compensation BYZ MSCCP-Z component
CHS Chair Stipend
CNP Charge Nurse Differential OT Premium CNS Charge Nurse Differential OT Straight EAA Executive Automobile Allowance
ICP Intercampus Payment
LSF Lump Sum Payment - Faculty MIA Management Incentive Award OLA ASC Ret. Benefit Allowance OLM ASC Research-Amt
OLN ASC Research
OLS ASC Teaching
OTH Overtime Half
OTP Overtime Premium
OTS Overtime Straight
PDA Professional Development Award
*PTT Terminal Trip Bonus Pay
RIP Relocation Incentive Payment SOP Shift Differential At Premium
SOS Shift Differential Overtime Straight SPA Special Performance Award
SPP Sea Pay OT Premium
SPS Sea Pay OT Straight
STP Stipend
SVE Executive Severance Pay TOC Time On Call
*TRM Terminal Vacation Pay
WKP Weekend Differential Overtime Premium WKS Weekend Differential Overtime Straight
* PTT and TRM are hard coded in the Payroll Personnel System to always be flat taxed.
When using these DOS codes to pay supplemental wages we encourage the departments to schedule payments on an employee's regular paydate. This will increase the likelihood of having regular salary included so that the total payment is not flat taxed. The changes will be in effect commencing with the June 26, 1996 biweekly payroll.
Please inform all your academic, staff, and student employees of this development so that they may begin to plan for their income tax withholding needs.
If you have any questions or comments please contact Paul Rodriguez of the Payroll Division at extension 43241 or via E-mail at prodriguez@ucsd.edu.
Donald A. Larson