What are supplemental wages?

Supplemental wages are pay outside your regular salary or hourly wage. The IRS lists bonuses, commissions, overtime pay, severance, back pay, awards, prizes, payouts of unused leave and reported tips. Employers can withhold federal tax on them at a flat 22% or with the aggregate method.

The flat rate is allowed only when income tax was withheld from your regular wages this year or last year. Above $1 million of supplemental wages in a year, 37% is mandatory. The aggregate method adds the payment to a regular paycheck, figures withholding on the total and subtracts what the regular check alone would have had.

Employers may also treat overtime and tips as regular wages. Social Security and Medicare apply either way. See whether bonuses are taxed differently, the supplemental wages entry, or the bonus tax calculator.