How do supplemental wages differ from regular wages?

Supplemental wages are additional payments given for performance, special events, or specific situations, such as bonuses, commissions, or severance pay. Regular wages are consistent earnings paid for a standard payroll period, typically at a set hourly rate or fixed salary.

What types of payments qualify as supplemental wages?

Supplemental wages include bonuses, commissions, overtime pay for hours exceeding 40 per week, severance pay, vacation payouts upon termination, expense reimbursements above federal rates, and employee awards or prizes from company contests.

How are supplemental wages taxed compared to regular wages?

Supplemental wages are taxed differently from regular wages. For annual payments under $1 million per employee, the IRS allows a flat federal withholding rate of 22% or combined withholding with regular salaries. Payments over $1 million are taxed at a flat 37% rate. State tax rates for supplemental wages vary by location.

How do employers report supplemental wages to tax authorities?

Employers report supplemental wages in quarterly payroll tax filings and on employees’ annual W-2 forms. These wages are included in total compensation alongside regular wages, ensuring accurate documentation and compliance with tax regulations.