Final answer:
Among the options listed, tips are the exception to IRS supplemental wages. Supplemental payments like shift differentials, severance, and retroactive pay affect how withholding and payroll taxes are calculated, while tips are considered voluntary customer gifts to employees. Option c
Step-by-step explanation:
IRS regulations include various types of payments as supplemental payments, with the exception of one specific type listed in the question. These supplemental payments typically reflect additional forms of compensation that go beyond regular wages. They are accounted for differently when it comes to withholding taxes. For example:
Shift differential is an extra pay rate for employees who work a less desirable shift, such as overnight or weekends.
Severance pay is given to employees upon termination of employment, often as part of a pre-determined severance package.
Retroactive pay is compensation that is owed to an employee for work performed in the past due to a pay increase that took effect after the work was completed.
However, tips do not fall under the IRS definition of supplemental payments. Tips are discretionary (voluntary) amounts of money given by customers to employees, commonly in hospitality and service industries, as a token of appreciation for service.
It's important to understand the distinction between these types of pay because it influences how employers calculate withholding tax and contribute to payroll taxes. This knowledge helps ensure that all forms of compensation are properly reported and taxed in accordance with IRS guidelines.
Furthermore, understanding these concepts aids in comprehending overall employee compensation, including additional benefits such as health benefits, retirement and savings (defined benefit or defined contribution), and legally required contributions such as employer payments to Social Security, unemployment and worker's compensation insurance, and other benefits like Medicare. Option c