Which payments are supplemental
IRS Publication 15 (2026), section 7, separates regular wages, the pay for a normal pay period at a set rate, from everything else paid on top. Its list of supplemental wages includes:
- Bonuses, awards and prizes
- Commissions
- Back pay and retroactive pay increases
- Severance pay
- Reported tips (which an employer may also treat as regular wages)
- Overtime pay, which an employer may treat as either kind
The label matters only for federal income tax withholding. Every supplemental payment is still subject to social security, Medicare and FUTA in the usual way.
Withholding on a $2,000 commission
An employee earns a $2,000 commission, paid on its own and shown separately from salary. Using the optional flat-rate method from Publication 15:
| Line | Rate | Amount |
|---|---|---|
| Federal income tax | 22% | $440.00 |
| Social security | 6.2% | $124.00 |
| Medicare | 1.45% | $29.00 |
| Paid before state tax and other deductions | $1,407.00 |
The other route is the aggregate method: add the commission to the regular wages for the period and withhold on the total as if it were one paycheck. That often withholds more in the month of the payment. Either way, the 22% is withholding, and the employee's real tax is settled on their return.
Showing supplemental pay on a stub
Give the supplemental payment its own earnings line (Bonus, Commission, Back pay) rather than folding it into Regular. Publication 15 only allows the flat 22% when the payment is identified separately from regular wages, so a separate line is also the record that supports the method.
Year-to-date columns then show regular and supplemental pay apart, which helps when the employee passes $1 million of supplemental wages and the mandatory 37% rate starts.
Read next
Related terms
Questions
Are supplemental wages taxed at a higher rate?
They are withheld differently, not taxed differently. The flat 22% is a withholding rate. The employee's actual tax is worked out on their annual return, where supplemental and regular wages are added together.
Is overtime a supplemental wage?
It can be either. Publication 15 lets an employer treat overtime as regular wages or as supplemental wages. The flat 22% is only open to supplemental pay identified separately from the period's regular wages.
When is the 37% rate mandatory?
Once an employee's supplemental wages from you pass $1 million in a calendar year, federal income tax on the excess must be withheld at 37%, whatever the employee's Form W-4 says.
Sources
- IRS: Publication 15 (2026), Employer's Tax Guide (read October 8, 2026)
Figures are for the 2026 tax year unless the text says otherwise. This page explains a payroll term; it is general information, not tax or legal advice.