Have you ever paid an employee something other than his or her regular salary? Then you’ve participated in 'supplemental wages.' Supplemental wages are simply payments to any worker that are not regular wages. Supplemental income can include things like bonuses, accrued sick time, overtime, severance checks, back pay, and more. If an employee earns a cash reward - that's considered supplemental income.
The withholding rate for a person’s regular pay is based on his or her W-4, while supplemental wages are often taxed completely differently. They’re not subject to normal state laws – giving employers three options for making such payments:
- Pay your employee his or her supplemental wages during a regular pay period. This can included on his or her check, or issued in a separate one entirely.
- Pay the supplemental wages on a different day than pay day.
- Include the supplemental income with the payment of an employee’s regular pay.