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How to set up federal and state tax on supplemental earnings

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Posted on by Vickie Thomas

We need to tax supplemental earnings at the 25%/35% federal tax rate and the 6% NC state supplemental tax rate. There is a "Fed Bonus Table" set up in our Payroll Tables, but nothing set up there for state bonus taxes. We also have a "Fed Bonus 25%" and a "Fed Bonus 35%" deduction set up in our Deduction Types but no deduction type for the 6% NC bonus tax. How do we need to revise our 1) Payroll Tables and 2)Deduction Types and attach to the earnings codes that need to be taxed at these supplemental/bonus rates?

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Re: How to set up federal and state tax on supplemental earnings

The federal 25% deduction is used for the majority of bonuses. I believe (but please verify on the irs website www.IRS.gov) the 35% deduction is only used for bonuses in excess of $1,000,000. If you have bonuses that require both rates I would create two earnings types and attach the FED5 to the standard earning type and FED8 to the Other Bonus . You would attach the NC Bonus SIT, plus the FICA/MEDICARE deduction to both earnings types.

You need to create the NC deduction type. States usually have a flat percentage deduction for bonuses as opposed to using the tax tables.