Supplemental wages refer to any earnings an employee receives in addition to their standard salary or hourly pay. Since this type of compensation is not part of regular wages, it can be issued on a different schedule—such as through annual bonuses or monthly commissions.
Understanding Supplemental Pay
Other common forms of supplemental wages include performance bonuses, overtime earnings, overtime on tipped wages, tip credit adjustments, unused sick leave payouts, retroactive pay changes, and severance packages. On the other hand, payments like stipends, vacation pay, and PTO are typically not classified as supplemental wages.
Although there is more flexibility in when and how supplemental wages are distributed, they are still taxed similarly to regular wages. Employers are required to include all supplemental pay in Box 1 (wages, tips, and other compensation) on the employee’s W-2 form. These wages are subject to the same federal and state income tax withholding and must be factored into Social Security and Medicare wage bases.
Why It Matters
For employees, it’s crucial to report any supplemental earnings accurately during tax season. Not doing so may result in a tax shortfall. For employers uncertain about how to handle these payments correctly, Beyond offers reliable payroll solutions that simplify the process and ensure accurate tax reporting.