What are supplemental wages?

Supplemental wages are a form of compensation employers offer in addition to base salary. While regular wages are consistent, either as a pre-agreed salary or an hourly rate, supplemental wages vary from pay period to pay period.

Why should HR leaders care about supplemental wages?

Though supplemental pay doesn’t usually make up the bulk of a compensation package, they’re still important. It can serve as a reward for hard work and achievements or an incentive for people to demonstrate more dedication and a better work ethic.

What doesn’t qualify as supplemental pay?

Some forms of compensation don’t qualify as supplemental pay because they’re fixed obligations or non-taxable benefits. Unlike supplemental wages, which are often variable and performance-based, these payments are tied to existing agreements or legal requirements.

How are supplemental wages taxed?

If employers combine supplemental wages with their people’s regular paychecks, they withhold Social Security and Medicare from supplemental wages, just as they do for standard wages. But, when it comes to withholding federal tax, supplemental wages are subject to specific regulations.

Who is responsible for reporting supplemental wages?

The employer is responsible for reporting supplemental pay. Because of this, companies track how much supplemental pay each person receives annually and whether they distribute supplemental income separately or combined with base pay.

How are supplemental wages different from regular pay?

Regular pay refers to fixed compensation, such as salaries or hourly wages, that team members earn for their standard work hours and responsibilities. In contrast, supplemental wages are variable payments made in addition to regular pay. These include bonuses, sales commissions, overtime pay, or payouts for accrued benefits like unused vacation or sick leave.

How do employers report supplemental wages on pay stubs?

Employers report supplemental wages on pay stubs by clearly itemizing them separately from regular wages. Each type of supplemental wage—such as bonuses, commissions, or overtime pay—is listed as a distinct entry on the pay stub. This practice helps team members identify the source of each payment and its amount. Alongside each supplemental wage entry, employers indicate the specific tax withholdings applied.

What is the supplemental wages tax rate?

The tax rate for supplemental wages varies based on the total amount and the payment method. In the US, for amounts up to $1 million, a flat federal withholding rate of 22 percent applies. For supplemental wages exceeding $1 million, the withholding rate increases to 37 percent. However, additional state or local tax regulations may also influence the final amount withheld.