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ARTICLE · 12 SEPTEMBER 2006

IRS Issues Final Regulations On Supplemental Wage Payments

Littler Mendelson
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On July 25, 2006, the IRS released final regulations addressing the issue of supplemental wages. The new regulations are effective for payments made beginning January 1, 2007. Employers should specifically understand the changes that will occur that may require modifications to current payroll systems.

United StatesEmployment and HR
Littler Mendelson, P.C.
Littler Mendelson, P.C.
William Weissman
William Weissman
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Introduction

On July 25, 2006, the IRS released final regulations addressing the issue of supplemental wages.1 The new regulations are effective for payments made beginning January 1, 2007. Employers should specifically understand the changes that will occur that may require modifications to current payroll systems.

Regular and Supplemental Wages Defined

Similar to the proposed regulations issued in 2005, the final regulations define regular and supplemental wages. "Regular wages" means wages paid by an employer for a payroll period either at a regular hourly rate or in a predetermined fixed amount. Supplemental wages are all wages that are not regular wages. Stated differently, supplemental wages are wages that vary from payroll period to payroll period based on factors other than the amount of time worked.2

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