from IRS Circular E.
Is severance considered supplemental income? it's supplemental wages per IRS Circular E.
7. Supplemental Wages
Supplemental wages are wage payments to an employee
that aren't regular wages. They include, but aren't limited
to, bonuses, commissions, overtime pay, payments for
accumulated sick leave, severance pay, awards, prizes,
back pay, reported tips, retroactive pay increases, and
payments for nondeductible moving expenses. However,
employers have the option to treat overtime pay and tips
as regular wages instead of supplemental wages. Other
payments subject to the supplemental wage rules include
taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. See Regulations section 31.3402(g)-1 for additional guidance. Also see Revenue Ruling 2008-29, 2008-24 I.R.B. 1149, available at IRS.gov/irb/2008-24_IRB#RR-2008-29.
If you didn't withhold income tax from the employee's regular wages in the current or immediately preceding
calendar year, use method 1b.
method 1b
If the supplemental wages are paid concurrently with regular wages, add the supplemental wages
to the concurrently paid regular wages and withhold federal income tax as if the total were a single
payment for a regular payroll period. If there are no concurrently paid regular wages, add the supplemental wages to, alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax already withheld or to be withheld from the regular wages. Withhold the remaining tax from the supplemental wages. If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, figure the tax on the total, subtract the tax already
withheld from the regular wages and the previous supplemental wage payments, and withhold the
remaining tax.
can't say the right amount was withheld. A w-4 is not required.
