Federal Income Taxes on Supplementary Wages

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 of one two ways:
    • at a flat 22% rate, regardless of the employee's normal withholding rate or exemptions. This is the simplest method.
    • using the aggregate method:
      1. Add the supplemental wages to the gross wages in the most recent paycheck.
      2. Based on the employee's W-4, calculate the withholding for the sum.
      3. From this amount, subtract the amounts withheld from the most recent paycheck to yield the withholding for the supplemental wages.

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).

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