Caution:

References to federal income tax withholding don’t apply to employers in American Samoa, Guam, the CNMI, the USVI, and Puerto Rico, unless you have employees who are subject to U.S. income tax withholding. Contact your local tax department for information about income tax withholding.

Supplemental wages are wage payments to an employee that aren’t regular wages. They include, but aren’t limited to, bonuses, commissions, overtime pay (see Overtime compensation in section 5), payments for accumulated sick leave, severance pay, awards, prizes, back pay, reported tips (see Federal income tax withholding on tips in section 6), retroactive pay increases, and payments for nondeductible moving expenses. However, employers have the option to treat overtime pay and tips as regular wages instead of supplemental wages. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. See Regulations section 31.3402(g)-1 for additional guidance. Also see Revenue Ruling 2008-29, 2008-24 I.R.B. 1149, available at IRS.gov/irb/2008-24_IRB#RR-2008-29 .

Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year.

Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 37% (or the highest rate of income tax for the year). Withhold using the 37% rate without regard to the employee’s Form W-4. In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. For more information, see Treasury Decision 9276, 2006-37 I.R.B. 423, available at IRS.gov/irb/2006-37_IRB#TD-9276 .

Withholding on supplemental wage payments to an employee who doesn’t receive $1 million of supplemental wages during the calendar year.

If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld.

Supplemental wages combined with regular wages.

If you pay supplemental wages with regular wages but don’t specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period.

Supplemental wages identified separately from regular wages.

If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee’s regular wages.

If you withheld income tax from an employee’s regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Withhold a flat 22% (no other percentage allowed). If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages and withhold federal income tax as if the total were a single payment for a regular payroll period. If there are no concurrently paid regular wages, add the supplemental wages to, alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax already withheld or to be withheld from the regular wages. Withhold the remaining tax from the supplemental wages. If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, figure the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax.

If you didn’t withhold income tax from the employee’s regular wages in the current or immediately preceding calendar year, use method 1b.

Example 1.

You pay John Peters a base salary on the first of each month. John’s most recent Form W-4 is from 2018, and John is single, claims one withholding allowance, and didn’t enter an amount for additional withholding on Form W-4. In January, John is paid $1,000. You decide to use the Wage Bracket Method of withholding. Using Worksheet 3 and the withholding tables in section 3 of Pub. 15-T, you withhold $2 from this amount. In February, John receives salary of $1,000 plus a commission of $500, which you combine with regular wages and don’t separately identify. You figure the withholding based on the total of $1,500. The correct withholding from the tables is $53.

Example 2.

You pay Sharon Warren a base salary on the first of each month. Sharon submitted a 2026 Form W-4 and checked the box for Single or Married filing separately. Sharon didn’t complete Steps 2, 3, and 4 on Form W-4. Sharon’s May 1 pay is $2,000. You decide to use the Wage Bracket Method of withholding. Using Worksheet 2 and the withholding tables in section 2 of Pub. 15-T, you withhold $65. On May 15, Sharon receives a bonus of $1,000. Electing to use supplemental wage withholding method 1b, you do the following.

Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000).

Determine the amount of withholding on the combined $3,000 amount to be $179 using the wage bracket tables.

Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($179 – $65 = $114).

Withhold $114 from the bonus payment.

Example 3.

The facts are the same as in Example 2 , except you elect to use the flat rate method of withholding on the bonus. You withhold 22% of $1,000, or $220, from Sharon’s bonus payment.

Example 4.

The facts are the same as in Example 2 , except you elect to pay Sharon a second bonus of $2,000 on May 29. Using supplemental wage withholding method 1b, you do the following.

Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000).

Determine the amount of withholding on the combined $5,000 amount to be $419 using the wage bracket tables.

Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($419 – $65 – $114 = $240).

Withhold $240 from the second bonus payment.

Tips are treated as supplemental wages.

Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available (see Federal income tax withholding on tips in section 6). Don’t withhold the income tax due on tips from employee tips. If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. If you withheld income tax from the regular wages in the current or immediately preceding calendar year, you can withhold on the tips by method 1a or 1b discussed earlier in this section under Supplemental wages identified separately from regular wages . If you didn’t withhold income tax from the regular wages in the current or immediately preceding calendar year, add the tips to the regular wages and withhold income tax on the total by method 1b discussed earlier. Employers also have the option to treat tips as regular wages rather than supplemental wages. Service charges aren’t tips; therefore, withhold taxes on service charges as you would on regular wages.

Vacation pay.

Vacation pay is subject to withholding as if it were a regular wage payment. When vacation pay is in addition to regular wages for the vacation period (for example, an annual lump-sum payment for unused vacation leave), treat it as a supplemental wage payment. If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it.