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