Quick Answer
The 37% supplemental withholding rate applies to supplemental wages over $1 million paid to an individual in a calendar year. For amounts under $1 million, employers typically withhold at 22% flat rate or use the aggregate method with your regular payroll.
Best Answer
Marcus Rivera, CFP
Best for executives and high earners who may receive large bonuses or equity compensation
When the 37% rate kicks in
The 37% supplemental withholding rate applies specifically when your supplemental wages (bonuses, commissions, overtime premium, severance, stock options, etc.) exceed $1 million in a single calendar year from one employer. According to IRS Publication 15, this is a mandatory flat rate — employers have no choice but to withhold at 37% once you cross that threshold.
How the $1 million threshold works
The key is understanding that this applies to supplemental wages only, not your regular salary. Here's how it works:
Example: $1.2 million bonus scenario
Let's say you're a senior executive earning $300,000 base salary and receive a $1.2 million bonus:
Why this rate exists
The 37% rate serves as a backstop to ensure high earners don't dramatically under-withhold on large supplemental payments. Since supplemental wages often push taxpayers into higher brackets, the flat 37% rate (matching the top marginal rate) helps prevent large tax bills at year-end.
What counts as supplemental wages
The aggregate method alternative
For supplemental wages under $1 million, employers can use the aggregate method instead of 22% flat rate:
1. Add supplemental wage to last regular paycheck
2. Calculate withholding on combined amount
3. Subtract withholding that would apply to regular pay alone
4. Withhold the difference on supplemental wage
This often results in higher withholding than 22% for high earners.
Key factors for year-end planning
What you should do
If you expect supplemental wages over $1 million, work with your tax advisor to:
1. Calculate your expected effective tax rate
2. Determine if 37% withholding will be sufficient
3. Make quarterly estimated payments if needed
4. Consider timing of discretionary supplemental payments
Use our [W-4 Optimizer](w4-optimizer) to model different withholding scenarios and avoid surprises.
Key takeaway: The 37% supplemental withholding rate only applies to supplemental wages over $1 million per employer per year. For most high earners, the 22% flat rate or aggregate method applies to their bonuses and commissions.
Key Takeaway: The 37% supplemental withholding rate only applies to supplemental wages over $1 million per employer per year, with the excess amount subject to mandatory 37% withholding.
Supplemental wage withholding rates based on annual amount per employer
| Annual Supplemental Wages | Withholding Method | Rate | Notes |
|---|---|---|---|
| Under $1,000,000 | 22% flat rate or aggregate method | 22% or variable | Employer chooses method |
| Over $1,000,000 | Mandatory flat rate on excess | 37% on amount over $1M | No employer discretion |
| $1,200,000 example | Hybrid approach | 22% on first $1M, 37% on $200K | Total: $294,000 withheld |
More Perspectives
Sarah Chen, CPA
For typical employees who occasionally receive bonuses or commissions under $1 million
Good news: 37% probably doesn't apply to you
If your bonus or commission is under $1 million, you won't see the 37% supplemental withholding rate. According to IRS Publication 15, most employees will see either 22% flat rate withholding or the aggregate method on their supplemental pay.
What you'll actually see
For bonuses under $1 million, employers typically choose:
22% flat rate method:
Aggregate method:
Example: $10,000 bonus at $75,000 salary
22% flat rate:
Aggregate method (biweekly pay):
Why it feels like high taxes
Even at 22%, bonus withholding can feel steep because:
What this means at tax time
The withholding rate isn't your tax rate — it's just prepayment. If too much was withheld, you'll get a refund. Use our [Paycheck Calculator](paycheck-calculator) to estimate your true tax impact.
Key takeaway: Most employees never see 37% supplemental withholding since it only applies to supplemental wages over $1 million per employer per year.
Key Takeaway: Most employees never encounter the 37% rate since it only applies to supplemental wages exceeding $1 million per employer annually.
Sarah Chen, CPA
For employees who work multiple jobs and may receive supplemental wages from different employers
Multiple employers = multiple $1 million thresholds
If you work multiple jobs, each employer applies the $1 million supplemental wage threshold separately. This means you could theoretically receive $999,999 in supplemental wages from three different employers and never trigger the 37% rate.
How withholding works across jobs
Each employer withholds independently based on:
Example: Executive consultant scenario
You work as:
The year-end challenge
While you avoid 37% withholding, you face other issues:
Under-withholding risk:
Estimated payment requirements:
Managing multiple job withholding
1. Use Form W-4 Step 2(c): Check the box if you have multiple jobs
2. Increase withholding: Add extra amount on line 4(c) of W-4
3. Make estimated payments: Cover the shortfall quarterly
4. Monitor throughout year: Don't wait until December
Key considerations
Use our [W-4 Optimizer](w4-optimizer) to model withholding across multiple jobs and avoid year-end surprises.
Key takeaway: With multiple jobs, each employer applies the $1 million supplemental wage threshold separately, but your combined income may require additional withholding or estimated payments.
Key Takeaway: Multiple employers each apply the $1 million threshold separately, but combined high income from multiple jobs often requires additional withholding planning.
Sources
- IRS Publication 15 — Employer's Tax Guide - Supplemental Wage Withholding Rules
- IRS Revenue Procedure 2025-24 — 2026 Tax Year Inflation Adjustments
Related Questions
Reviewed by Marcus Rivera, CFP on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.