What is the Federal Supplemental Tax Rate? (2024)

Potential additional withholding

If you work as an employee, the amount of tax withheld from your paycheck is based upon the information you provided on Form W-4 and the amount of your wages. However, if you receive any form of supplemental wages during the year, your employer may be required to withhold tax using a different method.

Supplemental wages

If your employer pays you extra money, outside of your regular salary, the federal government typically treats this as supplemental wages. These wages generally include commissions and bonuses, any severance payments upon termination of your employment, taxable prizes and awards, retroactive pay increases, reimbursem*nts of nondeductible moving expenses, taxable fringe benefits and certain kinds of expense reimbursem*nts and allowances.

When expense reimbursem*nts are considered supplemental wages

Unless an "Accountable Plan" for employee reimbursem*nts, your expense reimbursem*nts are likely supplemental wages subject to supplemental tax withholding rates. To be an accountable plan, the expense reimbursem*nt arrangement must meet all of the following rules:

• Expenses must be incurred while performing services as an employee of the company and the reimbursem*nt must be for the expenses and not wages.
• Second, you must be required to provide proof, like a receipt, of the expense to your employer within a reasonable time.
• Finally, if your employer pays you an allowance or reimbursem*nt that exceeds your actual expense, you must be required to refund the excess within a reasonable time.

Supplemental wages tax rates

There are two different supplemental withholding rates that can apply, depending upon the amount of supplemental wages you receive during a single year and depending upon whether the supplemental wages are paid as a separate payment or paid with your regular wages.

TurboTax Tip:

If your employer does not designate your pay as supplemental wages and includes it with your regular wages, the supplemental withholding rate does not apply and taxes are withheld using the information you provided on Form W-4.

Supplemental wages of more than $1 million

If your total annual supplemental wages are greater than $1 million, your employer must withhold tax on the amount over $1 million at the highest rate of income tax allowed by federal law (currently 37%).

Supplemental wages of $1 million or less

If your supplemental wages are $1 million or less, the withholding rate depends upon how your supplemental wages are paid.

• If your employer does not designate your pay as supplemental wages and includes it with your regular wages, the supplemental withholding rate does not apply and taxes are withheld using the information you provided on Form W-4.
• If your supplemental wages are identified separately from your salary (as a bonus, for example), your employer must withhold taxes using one of the following two methods:
  • Withhold at the supplemental rate of 22 percent or
  • Combine your regular wages for the pay period with your supplemental wages and treat the total as one payment of regular wages and then withhold taxes using ordinary withholding rates.

As with your normal tax withholding, if the total of your taxes paid exceeds your taxes due for the year, you can receive a tax refund when you file your tax return. Likewise, if your withholding is less than the amount of tax calculated when preparing your tax returns you will likely have to pay an additional amount due.