What Is Other Federal Withholding? Bonuses, Retirement, and Backup Rules

Other federal withholding is federal income tax taken from payments that don’t come through your regular paycheck: bonuses and other supplemental wages, pension and IRA distributions, gambling winnings, and 1099 income subject to backup withholding. Instead of the personalized calculation your employer runs from your Form W-4, these payments use flat percentages or simplified election forms. The rate is less precise, but every dollar withheld still counts the same on your return.

The reason for the different treatment is practical. Your employer knows your filing status, dependents, and W-4 adjustments, and spreads your estimated tax across each pay period using IRS Publication 15-T tables.¹ A lump-sum bonus, a one-time IRA withdrawal, or a payment from a client you freelance for has no W-4 behind it. The IRS assigns a fixed rate instead, and any over- or under-withholding sorts itself out when you file.

Withholding on Bonuses and Other Supplemental Wages

Supplemental wages are payments on top of your regular salary: bonuses, commissions, severance, accumulated sick leave payouts, and overtime. Employers can use one of two methods.

The flat rate method is the common one. Your employer withholds 22% of the supplemental payment for federal income tax, without regard to your W-4.² A $10,000 bonus loses $2,200 to federal income tax withholding before it reaches you.

That 22% rate holds as long as your supplemental wages from a single employer stay at or below $1 million for the calendar year. Every dollar above $1 million is withheld at 37%, the current top marginal rate, and the employer has no discretion to reduce it.²³

The alternative is the aggregate method, where the employer adds the supplemental payment to your regular wages for the pay period and withholds on the combined amount as if it were all regular pay. This tends to overwithhold because the total pushes more of your income into higher brackets. Some payroll systems default to it.

Keep in mind that the 22% covers only federal income tax. Social Security (6.2% on earnings up to $184,500 in 2026) and Medicare (1.45% with no cap) still come out of supplemental wages.⁴⁵ If your combined pay for the year passes $200,000, an extra 0.9% Medicare tax kicks in on the excess. A $10,000 bonus can easily lose close to $3,000 in total withholding once FICA is added.

Withholding on Retirement and Annuity Payments

Pensions, annuities, 401(k)s, and IRAs each carry their own rules, and the rate depends on how the money leaves the account.

Periodic Payments

Regular installments, like a monthly pension check, are treated most like wages. You file Form W-4P with the plan administrator to choose your withholding based on filing status and adjustments, and you can elect to have nothing withheld if you’d rather pay the tax yourself.⁶ Skip the form and the default is withholding as if you filed single with no adjustments, which usually pulls more than most retirees actually owe.

Non-Periodic Distributions

One-time or irregular payments, such as a lump-sum IRA withdrawal or a 401(k) hardship distribution, carry a default federal income tax withholding rate of 10% of the taxable amount.⁷ To change it, you file Form W-4R and elect any whole-number percentage from 0% to 100%.⁸

The 10% default catches many people off guard because it often underwithholds. If your actual bracket is 22% or 24%, a large distribution with only 10% held back leaves you owing the difference, possibly with an underpayment penalty. Raise the W-4R rate, or make an estimated payment soon after the distribution, to cover the gap.

The 20% Rollover Trap

Moving retirement money is where withholding surprises hit hardest. A direct rollover, where the administrator sends funds straight to the new plan or IRA, triggers zero withholding because the money never leaves tax-deferred status.⁹

An indirect rollover works differently. The plan pays you first, and you have 60 days to deposit the money into another qualified plan or IRA. Because the funds touched your account, the plan must withhold 20% of the taxable portion upfront.⁹ To roll over the full amount, you have to make up that 20% out of other savings within the 60-day window. You get the withheld amount back only as a credit when you file. A direct rollover avoids the whole problem.

Backup Withholding on 1099 Income

Backup withholding applies to non-wage income reported on Forms 1099: interest, dividends, rents, royalties, and payments to independent contractors. It isn’t the default. It kicks in only after a specific compliance failure between you and the payer, and the rate is 24% of the payment.¹⁰

Four situations trigger it:¹¹

You failed to give the payer a Taxpayer Identification Number, usually by not returning Form W-9.
The IRS notified the payer that the TIN you gave doesn’t match its records.
The IRS notified the payer that you previously underreported interest or dividend income.
You failed to certify that you aren’t subject to backup withholding when required.

For a missing or incorrect TIN, the payer sends a “B Notice,” and you can resolve it by returning a correctly completed and signed Form W-9.¹² For underreporting, backup withholding continues until the IRS itself tells the payer to stop, so you need to clear the underlying issue with the IRS. Money already withheld isn’t lost; it flows to your return as a credit like any other federal withholding.

Where Other Withholding Appears on Your Return

All of it lands on Line 25 of Form 1040. Federal income tax withheld from wages, including the 22% on supplemental pay, comes from Box 2 of your W-2 and goes on Line 25a. Withholding from retirement distributions (Box 4 of Form 1099-R) and other 1099 income, including backup withholding, goes on Line 25b. Gambling withholding from Form W-2G and certain other amounts go on Line 25c.¹³

Whether the money came from the 22% supplemental rate, the 10% retirement default, or the 24% backup rate, it counts equally as payment toward your final liability. The total on Line 25 is subtracted from what you owe. Come in over, you get a refund. Come in under, you write a check.

Avoiding an Underpayment Penalty

If most of your income comes from sources with “other” withholding — retirees on pension distributions, freelancers getting 1099s, anyone taking a big one-time distribution — you’re more exposed to underpaying during the year. The IRS charges an underpayment penalty when the shortfall at filing time is large enough, and the penalty interest rate was 7% as of early 2026.¹⁴

You avoid the penalty by meeting any one of these safe harbors:¹⁵

Your balance due after all withholding and refundable credits is under $1,000.
Your total withholding and estimated payments cover at least 90% of the current year’s tax.
Your payments equal at least 100% of last year’s tax, or 110% if your prior-year AGI was over $150,000 ($75,000 if married filing separately).

For retirees, the cleanest fix is dialing in Form W-4P or W-4R so withholding matches expected tax. For freelancers and investors whose income arrives with no withholding at all, quarterly estimated payments on Form 1040-ES fill the gap.¹⁶

1
Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate
2
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
3
eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments
4
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
5
Social Security Administration. Contribution and Benefit Base
6
Internal Revenue Service. About Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments
7
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
8
Internal Revenue Service. 2026 Form W-4R
9
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
10
Internal Revenue Service. Backup Withholding Due to Missing Payee TIN
11
Office of the Law Revision Counsel. 26 USC 3406 – Backup Withholding
12
Internal Revenue Service. Backup Withholding “B” Program
13
Internal Revenue Service. 2025 Instructions for Form 1040
14
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
15
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
16
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty