Which of the following describes the withholding method when there has been no prior supplemental wages and the payment is up to $1,000,000?

• A. Withhold income tax as if the total were a single wage payment for regular payroll period
• B. Withhold a flat 25% from the supplemental wages
• C. Withhold a flat 25% from the supplemental wages and withhold from regular wages using the appropriate table
• D. Compute income tax withholding on the regular wages separate from the supplemental wages

Answer: (C)

When withholding on supplemental wages with no prior supplemental wages and a payment within the $1,000,000 limit, you can use the flat-rate method for the supplemental portion while continuing normal withholding on the regular wages. The idea is to treat the supplemental amount separately from the regular wages: apply a flat 25% withholding to the supplemental portion, and compute withholding on the regular wages using the usual wage-bracket (or percentage) tables. This approach matches IRS guidance for this scenario and keeps the supplemental portion simple to tax while not altering the withholding on regular wages.

In this case, the described approach is best because it correctly handles the supplemental portion with a flat rate and separately applies the normal withholding method to regular wages. Other options would either apply the flat rate to the entire payment or ignore the standard withholding on regular wages, which wouldn’t align with how supplemental and regular wages are supposed to be treated together in the same pay period when there have been no prior supplemental wages.