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Supplemental Wage (Bonus) Withholding
Access the federal and state withholding methods for calculating taxes on supplemental wages. 
 PROBLEM: If an employee is paid non-recurring compensation in addition to regular wages, the amount of Federal income tax calculated on the combined payment might be disproportionately high. That is, the latter tax might exceed the sum of tax amounts calculated separately on EACH payment. The combined wage payment might put the employee into a higher percentage withholding range. Therefore, the I.R.S. and many states offer alternative withholding calculations when supplemental wages are paid. Examples of supplemental wage payments: bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases for current employees, and payments for non- deductible moving expenses.
Federal Withholding Methods
How to withhold on supplemental payments for Federal income tax purposes, depends on whether the payment is set up as an amount separate from the regular wages. There are two possibilities:
- If the supplemental wages are COMBINED with regular wages in a single payment, without identifying the amount of each, income tax is withheld as if the total were a single payment for a regular payroll period.
- If the supplemental wages are PAID SEPARATELY (or combined in a single payment, but the amount of each is specified), the income tax withholding method depends partly on a second question: whether income tax is being withheld specifically from the regular wages.
- Where income tax is WITHHELD from the regular wages, then use either of the following methods for the supplemental wages:
- Withhold at a flat rate of 25.0% for payments made on and after May 28, 2003 (no other percentage allowed)
- However, effective January 1, 2005, if the supplemental wage payments to an employee during the year exceed $1 million, the applicable flat withholding rate is 35% on the excess. OR add the supplemental to the regular wages for the most recent payroll period this year. Figure the income tax withholding as if the total were a single payment. Subtract the tax already withheld for the regular wages. Withhold the remaining tax from the supplemental wages.
- Where income tax is NOT WITHHELD from the employee's regular wages, income tax is withheld as if the total were a single payment for a regular payroll period.
Regardless of the method used to withhold income tax on supplemental wages, Social Security, Medicare and FUTA taxes apply to such payments. |
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State Withholding Methods
States which have an income tax withholding provision for supplemental wage payments generally follow the Federal methods. However, the state may authorize a different flat withholding percentage, as follows:
| State |
Withholding Percentage |
| Alabama |
5% |
| Alaska |
No personal income tax |
| Arizona |
No flat rate provision |
| Arkansas |
7% |
| California |
6% (9.3% for BONUSES and earnings from STOCK OPTIONS) |
| Colorado |
4.63% |
| Connecticut |
No flat rate provision |
| Delaware |
No flat rate provision |
| District of Columbia |
No flat rate provision |
| Florida |
No personal income tax |
| Georgia |
2, 3, 4, 5 or 6% |
| Hawaii |
No flat rate provision |
| Idaho |
7.8% |
| Illinois |
3% |
| Indiana |
3.4% |
| Iowa |
6% |
| Kansas |
5% |
| Kentucky |
No flat rate provision |
| Louisiana |
No flat rate provision |
| Maine |
5% |
| Maryland |
MD resident = 5.50% plus county W/H rate |
| Massachusetts |
5.3% |
| Michigan |
4.35% |
| Minnesota |
6.25% |
| Mississippi |
No flat rate provision |
| Missouri |
6% |
| Montana |
6% |
| Nebraska |
5% |
| Nevada |
No personal income tax |
| New Hampshire |
No personal income tax |
| New Jersey |
No flat rate provision, but W/H at 9.9% for pay over $500,000 |
| New Mexico |
4.9% |
| New York |
Various rates depending on municipality of residence |
| North Carolina |
6% |
| North Dakota |
3.92% |
| Ohio |
3.5% |
| Oklahoma |
5.5% |
| Oregon |
9% |
| Pennsylvania |
3.07% |
| Puerto Rico |
No flat rate provision |
| Rhode Island |
7% |
| South Carolina |
7% |
| South Dakota |
No personal income tax |
| Tennessee |
No personal income tax |
| Texas |
No personal income tax |
| Utah |
No flat rate provision |
| Vermont |
7.2% or 9.5%, depending on Federal rate applied |
| Virginia |
5.75% |
| Washington |
No personal income tax |
| West Virginia |
3 to 6.5% |
| Wisconsin |
4.6, 6.15, 6.5, or 6.75% |
| Wyoming |
No personal income tax |
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