What Are Supplemental Wages and How Are They Handled Through Payroll?
Supplemental wages are a common source of confusion for both employers and employees. Understanding what qualifies as supplemental pay, and how it’s handled through payroll, can help prevent surprises on payday and when taxes are filed.
What Counts as Supplemental Wages?
The IRS defines supplemental wages as any pay that is not considered regular wages.
Regular wages include salary, hourly earnings, overtime, sick pay, and vacation pay.
Common examples of supplemental wages include:
Bonuses
Commissions
Certain types of tips
Other irregular or “extra” payments
Tips can be a special case. For employees earning above Virginia's tipped minimum wage of $12.77 per hour (cash wage $2.13 plus tips), tips may need to be treated as supplemental wages depending on how they are reported.
How Supplemental Wages Are Withheld
Supplemental wages are typically withheld at the IRS supplemental rate of 22% for 2026, often higher than regular withholding. This follows IRS guidance to collect sufficient tax upfront.
If an employee’s actual tax rate is lower, overwithholding reconciles during tax filing as part of their refund. Employees may request customized withholding for supplemental pay, but instructions must be clear, written, and provided in advance; otherwise, employers must use the IRS rate.
Why Clear Payroll Policies Matter
If bonuses or commissions are a regular part of compensation, it’s important to set expectations early. Clear payroll policies help employees understand how supplemental pay is handled and reduce confusion when these payments occur.
Watch our video about the most common payroll compliance mistakes.
If you have questions about supplemental wages or want help setting up payroll practices that fit your business, our team is here to help. Visit our website, explore our resources, or reach out to us directly.
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