What is supplemental pay, and how is it taxed differently from regular wages?

[Administrator]

Our payroll team is setting up a bonus run and wants to make sure supplemental pay is handled correctly. Supplemental pay includes wages paid outside of regular salary — things like bonuses, commissions, overtime, and severance. The IRS allows employers to withhold federal income tax on supplemental wages at a flat 22% rate, rather than using the standard withholding method. Does your team use the flat rate or aggregate method, and has that caused any issues for employees at tax time?

 

[susangrey]

Supplemental pay is extra compensation given in addition to regular wages, such as bonuses, commissions, overtime, or severance. In the United States, the Internal Revenue Service may tax supplemental wages differently, often using a flat federal withholding rate instead of the normal payroll tax calculation used for regular pay.

 

[Tight Eyez]

Supplemental pay is extra compensation paid in addition to regular wages, such as bonuses, commissions, overtime, severance, back pay, or certain awards. In the U.S., it’s taxed as ordinary income overall, but federal withholding is often handled differently at payment time: employers may withhold a flat percentage for separately identified supplemental wages (commonly 22% up to IRS limits) or use the aggregate method by combining it with regular wages. Regular wages usually use standard withholding tables based on Form W-4, so supplemental pay may feel taxed differently upfront even though final tax liability is settled when you file your return.

 

[robin]

Supplementary payments include bonuses, commission, overtime pay, and severance. They may be taxed differently, either using a flat withholding or adding them to salary, depending on the method of taxation used by employers.