Classify the payment before choosing a withholding method

Supplemental wages are wage payments that are not regular wages. IRS Publication 15 lists bonuses, commissions, overtime pay, accumulated sick-leave payments, severance pay, awards, prizes, back pay, reported tips, retroactive pay increases and payments for nondeductible moving expenses among the common examples. Taxable fringe benefits and allowances under a nonaccountable plan can also be supplemental wages. The label in an employer’s compensation system does not override the federal substance of the payment.

The first branch is whether the supplemental amount is separately paid or specifically identified. If a bonus is combined with regular wages and the employer does not state the amount of each, federal income tax withholding is figured as if the total were a single regular-wage payment for that payroll period. The optional flat percentage is not a shortcut for an unidentified combined payment. Select the combined option in the calculator so the result clearly marks the flat comparison as unavailable.

When the supplemental amount is separately paid or separately identified in a combined payment, a second condition controls the optional flat method. The employer must have withheld federal income tax from the employee’s regular wages in the current calendar year or the immediately preceding calendar year. If that condition is met, the employer may use 22% for supplemental wages that remain at or below the $1 million annual threshold, or may use the aggregate method. If the condition is not met, the aggregate method is required for that below-threshold portion.

Overtime and tips have special classification options. An employer may treat them as regular wages rather than supplemental wages. Service charges are not tips and are withheld as regular wages. A 2026 income-tax deduction that may apply to qualified overtime or qualified tips on an individual’s return does not remove the underlying wages from payroll taxation. Publication 15 directs employers to continue withholding and to use an updated Form W-4 under the applicable rules when an employee wants paycheck withholding to account for expected deductions.

Split the current payment when annual supplemental wages cross $1 million

The $1 million threshold is cumulative for supplemental wages paid to one employee during the calendar year. It is not the employee’s regular salary, adjusted gross income or total wages from unrelated employers. For this test, the employer must include supplemental wages from businesses under common control. The calculator therefore asks for supplemental wages paid earlier in 2026 and adds the current payment.

To the extent the cumulative amount exceeds $1 million, withholding is 37% for 2026, the highest individual income-tax rate for the year. That rate applies without regard to the employee’s Form W-4. If prior supplemental wages are $990,000 and the current bonus is $50,000, the first $10,000 of the bonus remains in the below-threshold portion and the remaining $40,000 is subject to mandatory 37% withholding. The threshold bar makes that split visible rather than applying one rate to the entire payment.

If earlier supplemental wages have already reached $1 million, the entire current supplemental payment is in the 37% segment. If the current payment does not cross the threshold, the entire payment is in the lower segment. The tool does not include prior-year bonuses because the test restarts with each calendar year. It also does not combine a spouse’s wages or payments from an unrelated employer.

The threshold is about federal income tax withholding. Supplemental wages remain subject to Social Security, Medicare and FUTA rules regardless of whether the employer uses the flat or aggregate income-tax method. Social Security has its own annual wage base, Medicare generally has no wage base, and Additional Medicare Tax withholding has a separate employer trigger. State and local withholding follow their own rules. Those taxes are intentionally outside the two federal income-tax paystub cards.

Use an actual Pub. 15-T result for the aggregate method

The aggregate method treats regular and supplemental wages as one payment for withholding-table purposes. When supplemental wages are paid concurrently with regular wages, the employer adds them together and figures federal income tax withholding on the total as if it were a single regular payroll-period payment. When no regular wages are paid concurrently, Publication 15 permits use of regular wages for the current payroll period or the preceding payroll period under the stated procedure.

After payroll determines withholding on the combined amount, it subtracts the federal income tax already withheld or to be withheld from regular wages. If earlier supplemental payments in the same payroll period were included, their withholding is also subtracted. The remainder belongs to the current supplemental payment. That subtraction is the reason this calculator requests three payroll figures rather than trying to reconstruct withholding from a filing-status dropdown.

Publication 15-T incorporates the employee’s actual Form W-4 version, filing-status election, multiple-jobs checkbox, dependents, other income, deductions, extra withholding, pay frequency and the payroll method selected by the employer. Rebuilding all of those facts inside a “bonus calculator” would easily diverge from payroll. Supplying the actual combined-wage result keeps the comparison auditable: payroll can point to the Pub. 15-T worksheet or payroll-system calculation behind the number.

As a check, Publication 15 gives an example with $2,000 of regular wages, $65 of regular-wage withholding and a separately paid $1,000 bonus. The combined-wage table result is $179. Under the aggregate method, the bonus withholding is $179 minus $65, or $114. The optional flat method would withhold $220. This calculator produces the same $106 difference when those payroll inputs are entered and there is no $1 million excess.

Read withholding as a prepayment, not the final bonus tax

The 22% rate is a withholding rate, not a special final federal tax bracket for bonuses. The bonus is generally included with other wages on Form W-2 and taxed through the employee’s annual return. A household’s final marginal rate can be lower or higher than 22% after salary, spouse income, deductions and credits are combined. Aggregate withholding can likewise be greater or less than the eventual tax attributable to the payment.

A paystub comparison answers a payroll question: how much federal income tax would be withheld from this supplemental payment under each permitted method? It does not answer how much of the payment the employee will keep after every deduction. Social Security and Medicare taxes, state and local income tax, retirement deferrals, benefits, garnishments and other deductions can all change the deposit. It also does not predict the annual refund, because withholding from every job and other payments must be reconciled on the return.

Employees who expect material underwithholding can review Form W-4 and the IRS Tax Withholding Estimator. Step 4(c) permits an additional dollar amount per paycheck; an employee generally cannot demand a custom withholding percentage in place of the prescribed method. A midyear W-4 change also affects later regular payroll, so the annual projection should be revisited in January rather than carried forward blindly.

Payroll teams should preserve the method selection, regular-wage withholding history, cumulative supplemental-wage total, common-control aggregation and the Pub. 15-T calculation used for the pay date. If a payment crosses $1 million, document the exact split. Round consistently under the payroll procedure. The calculator displays whole-dollar planning figures, while the payroll system remains the system of record for deposited and reported taxes.

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