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Set up supplemental withholding

Use withholding categories to control how each income tax jurisdiction withholds from supplemental earnings, such as bonuses and commissions. You can combine the earnings with regular wages or withhold them at a separate flat rate.

Important

Withholding requirements and rates vary by jurisdiction. Confirm the method and rate with current tax guidance before you process payroll.

How supplemental withholding works

Supplemental withholding uses three related settings:

  1. A Withholding Category groups pay types that require the same withholding treatment.
  2. A Withholding Rule assigns a method to the category for a specific income tax jurisdiction.
  3. The Withholding Category field on a pay type identifies earnings that use those rules.

You can select either of these methods for each category and jurisdiction:

Method How OnePayroll calculates withholding
Aggregate Combines the category earnings with regular earnings for the payroll period. The jurisdiction's calculation method calculates withholding on the combined amount.
Flat-Rate Keeps the category earnings separate from regular earnings and applies a category-specific rate. Earnings in the same category are combined before the rate is applied.

If a pay type has no withholding category, OnePayroll treats its earnings as regular earnings. If a category has no rule for an applicable jurisdiction, OnePayroll uses the Aggregate method for that jurisdiction.

Create a withholding category

  1. Choose the Lightbulb that opens the Tell Me feature. icon, enter Withholding Categories, and then choose the related link.
  2. Choose New.
  3. In Code, enter a unique code for the category, such as BONUS or COMM.
  4. In Description, enter a clear description.

Set up withholding rules

Create a rule for each jurisdiction that must treat the category differently from the default aggregate method.

  1. On the Withholding Categories page, select the category, and then choose Withholding rules.
  2. Add a line for the category and jurisdiction.
  3. In Method, select Aggregate or Flat-Rate.
  4. Repeat these steps for each applicable jurisdiction.

For an aggregate rule, Rate shows N/A because the jurisdiction's regular calculation method determines the withholding amount.

Set up a flat rate

For a flat-rate rule, the Rate field summarizes the withholding-rate rows that apply on the work date. It shows Unspecified when no rate is available and Varied when multiple rows apply.

  1. On the Withholding Rules page, choose the Rate value for the flat-rate rule.

  2. On the Withholding Rates page, fill in the following fields:

    Field Description
    Valid From Enter the date when the rate becomes effective. The date must be on or before the payroll payment date.
    Category Confirm the supplemental withholding category.
    Jurisdiction Code Confirm the jurisdiction for the rule.
    Income Tax Profile Leave this field blank for a supplemental withholding rate.
    Income From Enter the minimum current-period earnings in this category for the rate to apply. Enter 0 when the rate applies to all earnings in the category.
    Rate Enter the withholding percentage, such as 22 for 22 percent.
    Base Amount Enter any fixed withholding amount to add to the percentage calculation. Otherwise, enter 0.

  3. Close the page. If the rate is effective on the work date, confirm that Rate on the rule no longer shows Unspecified.

For flat-rate withholding, OnePayroll calculates the withholding amount as follows:

Category earnings × (Rate ÷ 100) + Base Amount

Assign the category to a pay type

  1. Choose the Lightbulb that opens the Tell Me feature. icon, enter Pay Types, and then choose the related link.
  2. Open the pay type for the supplemental earnings, such as a bonus or commission.
  3. On the General group, select the Withholding Category.
  4. Repeat these steps for each pay type that uses the category.

Leave Withholding Category blank on regular earning pay types that use ordinary withholding.

Example

Suppose the BONUS category has these rules:

Jurisdiction Method Result
Federal Flat-Rate OnePayroll applies the federal rate configured for the BONUS category.
State Aggregate OnePayroll combines the bonus with regular wages before the state calculation method calculates withholding.

When you assign BONUS to the bonus pay type, the same payment can use different withholding methods for the federal and state jurisdictions.

Verify the setup

Before you process supplemental earnings:

  1. Confirm that every applicable jurisdiction has the intended rule. Jurisdictions without a matching rule use the Aggregate method.
  2. For each flat-rate rule, confirm that an applicable withholding-rate row exists for the payroll payment date and earnings amount.
  3. Confirm that the supplemental pay type has the correct Withholding Category.
  4. Confirm that the employee has active withholding information for the expected jurisdictions.
  5. Process a sample payroll run and review the withholding entries.

Troubleshooting

The rule shows an unspecified rate

Choose Rate, and add a withholding-rate row for the same category and jurisdiction. Make sure Valid From isn't later than the payroll payment date and Income Tax Profile is blank.

Supplemental earnings use the aggregate method

Confirm that the pay type has a Withholding Category and that a Flat-Rate rule exists for the category and jurisdiction. A blank category or missing rule uses the Aggregate method.

An unexpected flat rate applies

Review the rate's Valid From and Income From values. The applicable rate must be effective for the payroll payment date, and its Income From value can't exceed the current payroll's earnings for the category.

See also

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