Which rates are included in the current option flat tax rate used to calculate gross-up for supplemental wages when no state tax applies?

• A. Federal withholding only
• B. Federal withholding plus Social Security and Medicare
• C. State withholding plus Federal
• D. FICA only

Answer: (B)

When calculating a gross-up for supplemental wages with no state tax, you must cover all deductions that will come out of those wages. The federal income tax on supplemental wages is withheld at the current flat rate, and payroll taxes for Social Security and Medicare (FICA) also apply. Since there’s no state tax, the gross-up needs to account for both federal withholding and FICA, not just one or the other. Including only federal withholding would ignore the FICA taxes, and including state withholding would be incorrect because state tax isn’t applying. So the best answer reflects federal withholding plus Social Security and Medicare.