Supplemental Wages
Supplemental wages are pay outside the regular paycheck, such as bonuses, commissions, severance, and overtime premiums. Employers may withhold a flat 22 percent federal on them, with a mandatory 37 percent on amounts over $1 million a year.
The IRS treats pay in two buckets for withholding. Regular wages run through the W-4 tables. Supplemental wages, everything from bonuses and commissions to severance, back pay, and taxable moving reimbursements, can instead be withheld under the percentage method: a flat 22 percent, no questions asked. Once a worker’s supplemental wages pass $1 million in a year, the excess must be withheld at 37 percent regardless of method.
The flat rate is why bonus checks feel over- or under-taxed. Someone in the 12 percent bracket loses more upfront than their real rate; someone in the 32 percent bracket loses less and may owe in April. Either way the truth-up happens on the return, because supplemental wages are ordinary income once filing season arrives. The bonus tax calculator shows the full withholding stack on a bonus.
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Related terms: Tax Withholding , Take-Home Pay , Severance Pay
Last updated . Part of the FinExplained finance glossary .