Employers may optionally withhold federal tax at what maximum rate if certain conditions are met?

Employers may optionally withhold federal tax at a maximum rate of 25% under specific conditions when an employee receives supplemental wages. Supplemental wages include bonuses, commissions, and overtime pay, which are treated differently from regular wages for tax withholding purposes.

The 25% flat rate applies when employers choose not to combine supplemental wages with the employee's regular wages for the withholding calculation, or when the supplemental wages are paid separately. This ruling is in accordance with IRS guidelines, ensuring consistency in the tax treatment of supplemental pay.

Other rates such as 20%, 30%, and 35% are not applicable as flat withholding rates for federal taxes on supplemental wages, making 25% the correct maximum optional withholding rate. This distinction is important for employers to grasp to remain compliant and ensure accurate payroll processing.