What is the difference between the aggregate method and the percentage method for withholding supplemental wages?

• A. Aggregate method uses a flat rate; percentage method uses regular wages.
• B. Aggregate method uses regular wages; percentage method uses a flat rate.
• C. Both ignore regular wages.
• D. Both use a flat rate.

Answer: (B)

The key idea is how withholding is calculated on supplemental wages like bonuses. With the aggregate method, you add the supplemental amount to the employee’s regular wages for the same pay period and withhold as if the total were one ordinary wage. The tax taken on the supplemental portion comes from the total withholding for that period, based on the employee’s usual withholding rules, so regular wages influence how much tax is allocated to the supplemental part. With the percentage method, you don’t mix it with regular wages—you apply a flat rate directly to the supplemental amount alone, independent of the regular wages. So the aggregate method uses regular wages to determine the withholding, while the percentage method uses a flat rate on the supplemental pay.