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How does an agency calculate the amount of employment tax withholding due on supplemental wages (such as the loan repayment) under the regular method?

To use this method the agency follows these steps:

  1. The Federal agency calculates the correct amount of employment tax withholding on all wages paid during the payroll period by treating the supplemental wages and the regular wages as a single wage payment for the payroll period.
     
  2. The Federal agency calculates the correct amount of employment tax withholding on the regular wages paid to the employee during the payroll period.
     
  3. The Federal agency subtracts the amount determined in step 2 from the amount determined in step 1 to calculate the amount of any employment tax withholding due with respect to the supplemental wages.

This answer was provided by the Internal Revenue Service (IRS). For further guidance/clarification on this issue, agency representatives may contact IRS (Federal, State and Local Governments) at (202) 283-9665.

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