Supplemental wages are any wages you pay employees beyond typical salaried or hourly pay. Bonuses, including holiday bonuses, are one of the most common types of supplemental wages, but the IRS classifies several other payments as supplemental wages too. For instance, sales commissions, sick leave, severance pay, financial awards or prizes, overtime, and tips all count as supplemental wages.
If you pay your employee their supplemental wages as a separate payment from their typical wages, you'll calculate the tax withholding amounts on the supplemental pay differently—and that's what the calculator on this page is for.
In the 2020 tax year, the federal flat tax rate for bonuses is 22%. On top of that 22%, you'll need to deduct the typical Social Security and Medicare taxes (FICA taxes) and federal unemployment taxes (FUTA taxes). And the state tax rate for bonuses varies across the country, so make sure to select your state from the calculator's drop-down menu to calculate state tax withholding correctly.