Examples of wage payments that are included in supplemental wages include reported tips (except as provided in paragraph (a)(1)(v) of this section), overtime pay (except as provided in paragraph (a)(1)(iv) of this section), bonuses, back pay, commissions, wages paid under reimbursement or other expense allowance …

What are supplemental wages per IRS?

Examples of wage payments that are included in supplemental wages include reported tips (except as provided in paragraph (a)(1)(v) of this section), overtime pay (except as provided in paragraph (a)(1)(iv) of this section), bonuses, back pay, commissions, wages paid under reimbursement or other expense allowance …

Are supplemental wages taxable?

Because supplemental wages are non-regular wages, federal income tax withholding can be different than how you withhold federal income taxes on regular wages. Withhold Social Security and Medicare taxes on supplemental wages the same way you would for regular wages.

What is the IRS supplemental tax rate for 2020?

If you’re fortunate enough to receive more than $1 million in supplemental wages, any amount over $1 million is taxed at a higher rate, which is 37% in 2020.

What is the 2022 federal supplemental tax rate?

The federal tax withholding rate on supplemental wages (e.g., bonus payments) exceeding $1 million during a calendar year remains at 37%. The rate for supplemental wages up to $1 million subject to a flat rate remains unchanged from 2021 at 22%.

Why are supplemental wages taxed differently?

Bonuses are taxed heavily because of what’s called “supplemental income.” Although all of your earned dollars are equal at tax time, when bonuses are issued, they’re considered supplemental income by the IRS and held to a higher withholding rate. It’s probably that withholding you’re noticing on a shrunken bonus check.

How is supplemental income reported on W-2?

When your employer provides you with a bonus, they will report it on your W-2 in box 1—but it’s combined with your normal wages or salary. In the eyes of the Internal Revenue Service, your bonus is no different than the salary you receive.

What is the tax rate for bonuses in 2021?

22%
Getting a year-end bonus can be thrilling, but you might be disappointed with the amount that actually hits your bank account. That’s because the 2021 bonus tax rate is 22%, so employees might see their bonus taxed at a higher rate than their typical income.