When should vacation pay be taxed as supplemental wages?

Author: Rena Pirsos, XpertHR Legal Editor

Vacation pay is subject to withholding as if it were a regular wage payment. But when it is paid in addition to regular wages for the vacation period, it should be treated as a supplemental wage payment. If vacation pay is for a time longer than an employer's usual payroll period, the employer should spread it out over the pay periods for which it is paid to the employee.