Supplemental Wages

What is Supplemental Wages?

Supplemental wages are compensation payments that fall outside an employee’s regular salary or hourly wages. Common examples include bonuses, commissions, overtime premiums, severance pay, back pay, retroactive pay increases, and taxable fringe benefits.

Why Supplemental Wages Matters

For payroll and tax purposes, supplemental wages are often subject to different withholding rules than regular wages. In the United States, employers can choose to withhold federal income tax on supplemental wages at a flat rate or by aggregating them with regular pay. Correctly identifying and processing these payments is important for both tax compliance and accurate employee pay statements.