The amount of Federal taxes withheld from supplemental wages depends, in part, on how the supplemental wages are paid in relation to normal wages.
- If paid as part of normal wages (as a single amount in the same check or deposit), income taxes are withheld from the combined amount based on the employee's W-4.
- If paid separately from normal wages (as a separate amount, in the same or different check or deposit), taxes are withheld in aggregate based on the employee's W-4 & IRS Withholding Tables or at the flat supplemental rate:
The supplemental rate is a a flat 22% rate, regardless of the employee's normal withholding rate or exemptions. This is the simplest method.
How does Zenefits handle supplemental pay
- In a normal pay run, if earnings that are taxed regularly are included in the check along with bonus/commission, Zenefits applies the aggregate method within the pay stub.
- If the supplemental wage is paid out by itself, then the supplemental rate is used independently (flat 22%). Likewise, for an off-cycle pay run where you do not choose "time based withholding."
- If you select any "time based withholdings" then the tax calculation will be based on the employee's W-4 & IRS withholding tables (bullet 1).
Withholding on supplemental wages for employees who earn > 1 million of supplemental wages
Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 37% (or the highest rate of income tax for the year). Withhold using the 37% rate without regard to the employee's Form W-4. In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. For more information, see Treasury DecisionFor earnings that make >= 1 million then tax 37%
See IRS Publication 15 for reference.
FUTA and FICA taxes are withheld as normal from supplemental wages. States may defer to the Federal guidelines for taxation on supplemental wages, or set their own guidelines (e.g., for the flat tax rate).