Federal Withholding Tax Estimator

Article | September 27th, 2022

published by Annie Zahner, Manager in Controllership

What are Supplemental Wages?

The short answer is any wage payments to an employee that aren’t regular wages.  This will include bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, reported tips, retroactive pay increases, payments for nondeductible moving expenses, taxable fringe benefits, and expense allowances paid under a non-accountable plan.

How are Supplemental Wages Taxed?

There are two options:

  1. 22{f0e9aca35d4451828e8f10f3ba16f7fd64efabe681755bb338dbe2e212e3397a} flat federal withholding – Used when supplemental wage is separately stated on paycheck (whether on a regular paycheck or separate check)
  2. When paid concurrently with regular wages, add the supplemental wages to regular wages and treat as if one single payment. Tax withholding will be calculated at the rate for the income tax bracket the employee falls into based on this check’s annualized pay.

For example, a single taxpayer paid $5,000 monthly ($60,000/year, 22{f0e9aca35d4451828e8f10f3ba16f7fd64efabe681755bb338dbe2e212e3397a} bracket) receives a $10,000 bonus one month. The taxes will be based on the total pay that month of $15,000, annualized ($15,000*12 = $180,000) which would cause withholding at 32{f0e9aca35d4451828e8f10f3ba16f7fd64efabe681755bb338dbe2e212e3397a}.

Other considerations

  • The flat rate percentage increases to 37{f0e9aca35d4451828e8f10f3ba16f7fd64efabe681755bb338dbe2e212e3397a} for supplemental wages of $1 million or more
  • Supplemental wages are also subject to Social Security, Medicare, and Unemployment taxes
  • Vacation pay is treated as a supplemental wage if the pay is more than the regular wages that would be paid during that time (lump sum payouts)
  • Missouri follows the same methods above, but uses the state flat rate of 5.3{f0e9aca35d4451828e8f10f3ba16f7fd64efabe681755bb338dbe2e212e3397a}

In most cases, using the flat rate will provide a higher net take-home pay but may leave you short on overall withholdings for the year depending on your circumstances.  Employees should determine any tax withholding gaps using the IRS Tax Withholding Estimator.

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