What Is a Supplemental Tax Rate: 22% Flat, 37%, and Aggregate

The supplemental tax rate is a flat 22% federal income tax withholding rate that employers apply to bonuses, commissions, severance, and other pay the IRS classifies as supplemental wages. It replaces the graduated withholding based on your Form W-4 for those specific payments, and it stays 22% no matter what bracket you actually land in at tax time. On supplemental wages above $1 million from one employer in a calendar year, the rate jumps to a mandatory 37%.¹

What Pay the Rate Applies To

Supplemental wages are compensation that falls outside your normal salary or hourly pay for the pay period. The IRS treats these as a separate category from your base wages.¹

The common ones: bonuses, commissions, severance pay, accumulated sick leave payouts, retroactive pay increases, back pay, awards, and prizes. Taxable fringe benefits, expense reimbursements paid under a nonaccountable plan, and income from exercising nonqualified stock options also count.¹²

Overtime is the one that catches people off guard. The IRS lists it as supplemental by default, but employers can choose to treat it as regular wages instead.¹ Your paystub will reflect whichever choice your employer made.

How the Flat 22% Method Works

The math is deliberately simple. The employer multiplies the supplemental payment by 22% and withholds that amount for federal income tax. Your W-4 elections, filing status, and dependents don’t enter into it.¹

To use the flat rate, the employer has to pay the supplemental wages on a separate check from your regular wages, or clearly identify them as a separate line item on the pay statement. There’s also a prerequisite that often goes unmentioned: the employer must have already withheld federal income tax from your regular wages at some point during the current or preceding calendar year. If no income tax has ever been withheld from your regular pay, the flat rate isn’t available and the employer must use the aggregate procedure instead.²

Most employers pick the flat rate because it’s easy. The trade-off falls on you: the 22% figure corresponds to the middle of the federal bracket structure, so if your income puts you in the 12% bracket, the withholding overshoots your actual liability. If you’re in the 32% or 35% bracket, it undershoots. You settle up when you file.

When Employers Use the Aggregate Method Instead

The alternative is called the aggregate procedure. The employer lumps the supplemental payment together with regular wages for the pay period, treats the combined total as a single paycheck, and calculates withholding on that inflated amount using the standard graduated tables and your W-4 elections.²

Then the employer subtracts what was already withheld (or will be) from the regular wages alone. What’s left is the withholding on the supplemental portion.¹

Because a big bonus can temporarily push the combined paycheck into a higher bracket, the aggregate method often withholds more than a flat 22% would. For lower-income employees, it can withhold less. Employers must use this method when supplemental wages are paid on the same check as regular wages without being separately identified, or when the flat-rate prerequisite hasn’t been met.

The 37% Rate on Supplemental Wages Over $1 Million

Once your cumulative supplemental wages from a single employer pass $1 million in a calendar year, the employer must withhold federal income tax at 37% on every dollar above that threshold. This matches the top federal bracket, and it’s mandatory. The flat 22% and the aggregate method are both off the table for the excess, and your W-4 is irrelevant.¹

On a $1.5 million bonus, the first $1 million can be withheld at 22% (or through the aggregate method), and the remaining $500,000 gets withheld at 37%. Employers must track cumulative supplemental payments across the year to know when the threshold is crossed.

The $1 million ceiling is measured per employer, not across all jobs. But the IRS treats companies within the same corporate group as one employer for this purpose, so supplemental wages from two subsidiaries of the same parent get combined.²

The Other Taxes That Still Come Out

The 22% (or 37%) rate covers federal income tax only. Your bonus is also hit with Social Security and Medicare at the usual rates. For 2026, that’s 6.2% for Social Security on earnings up to the $184,500 wage base, plus 1.45% for Medicare with no cap.¹³

If your wages for the year have already exceeded $184,500 before the bonus is paid, the Social Security piece drops off. If the bonus straddles the ceiling, Social Security tax applies only to the portion still under the cap. Medicare has no such limit.

High earners get an extra 0.9% Medicare surtax. Employers begin withholding it once your wages from that employer pass $200,000 for the year, regardless of filing status. Your actual liability on the return depends on household thresholds: $250,000 for married filing jointly, $200,000 for single filers.⁴

State income tax is a separate layer. Roughly 40 states impose their own withholding on supplemental wages, with flat rates that vary widely. Nine states have no state income tax. A few require employers to use their regular graduated tables rather than a flat supplemental rate. Put it all together and a $10,000 bonus in a state with a 5% supplemental rate and full FICA exposure can see close to 35% withheld before it reaches your account.

Why It’s Not Your Final Tax, and How to Avoid a Surprise

The supplemental withholding rate is a prepayment. When you file Form 1040, all your income is combined and taxed under the standard graduated brackets, and every dollar withheld throughout the year gets credited against that total.

If 22% was more than your actual bracket needed, you’ll see a bigger refund or smaller balance due. If it was too little, you’ll owe. For someone in the 24% bracket who received a $20,000 bonus, the gap is only $400. For someone in the 35% bracket with a $100,000 bonus, the underwithholding is around $13,000.

You can adjust for this during the year by filing an updated Form W-4. Step 4(c) lets you request a specific extra dollar amount withheld from each regular paycheck.⁵ If a large bonus is coming and 22% won’t cover your bracket, adding to your per-paycheck withholding for a few months closes the gap before filing.

A large shortfall can also trigger an underpayment penalty. The IRS generally waives it if you owe under $1,000 at filing, if your withholding and estimated payments cover at least 90% of the current year’s tax, or if you’ve paid at least 100% of the prior year’s liability through withholding. That last threshold rises to 110% if your adjusted gross income exceeded $150,000.⁶

1
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
2
eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments
3
Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
4
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
5
Internal Revenue Service. Form W-4 (2026), Employee’s Withholding Certificate
6
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty