Supplemental Withholding
Tax Glossary Term
Definition
Supplemental withholding is the method employers use to calculate federal income tax withheld from supplemental wages, which are payments outside regular salary such as bonuses, commissions, overtime pay, back pay, and severance. The IRS allows two methods. The flat-rate method applies a fixed 22.0% rate to supplemental wages up to $1,000,000 and 37.0% on amounts above that threshold (IRC Section 3402(g)(1)). The aggregate method combines supplemental and regular wages into a single payment and withholds from the total using the employee's W-4 and standard wage-bracket tables. Most employers use the flat-rate method for bonuses because it is simpler and does not require recalculating the entire payroll run. The flat rate is not a separate tax; it is only a withholding estimate. The actual tax owed on bonus income depends on the employee's marginal bracket, which may be higher or lower than 22.0%. If too much was withheld, the difference comes back as a refund; if too little, the employee owes at filing. FICA taxes (6.2% Social Security plus 1.5% Medicare) also apply to supplemental wages, up to the Social Security wage base of $184,500. Many states have their own supplemental withholding rates, often set equal to the state's top marginal income tax rate.
Example
Employee receives a $5,000 bonus in 2026:
Federal withholding (flat-rate): 22.0% x $5,000 = $1,100
Social Security: 6.2% x $5,000 = $310
Medicare: 1.5% x $5,000 = $72.5
Total withheld from bonus: $1,482.5
Employee receives: $3,517.5