Supplemental wages
Also: supplemental wages, supplemental compensation, supplemental income
Wages paid in addition to regular wages, including bonuses, RSU vests, NSO exercises, severance, and commissions. Subject to flat supplemental federal withholding: 22% up to $1 million in a calendar year, 37% above.
Supplemental wages are defined in Treasury Regulations 31.3402(g)-1 as compensation paid in addition to regular wages. The category covers bonuses, RSU vests, NSO exercises, severance, sales commissions, and back pay. Federal income tax withholding follows a two-tier flat schedule: 22% on the first $1 million of supplemental wages in a calendar year, then 37% on every dollar above $1 million. Employers are required to withhold 37% above the threshold; they cannot withhold at the employee’s marginal rate instead.
Example: a director earns $400,000 in base pay plus a $1.2 million RSU vest in a single year. The first $1 million of RSU value withholds at 22% ($220,000) and the last $200,000 withholds at 37% ($74,000), totaling $294,000 in federal supplemental withholding on the RSU tranche.
Common mistake: assuming 22% withholding covers the actual tax. Most tech employees receiving supplemental wages land in a 32% or 35% marginal bracket, creating a 10 to 13 point shortfall that has to be funded at filing.
Supplemental wages matter at every vest, bonus cycle, and option exercise.