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Terms and Definitions

What are supplemental wages?

Updated: May 16, 2024

Supplemental wages definition and meaning

Supplemental wages are any type of compensation an employee may receive in addition to their regular wages or salary. Because they’re not part of an employee’s regular compensation, supplemental wages can be paid on any schedule, like a year-end bonus, or a monthly commission payment.

 

More about supplemental wages

Additional examples include incentive bonuses, overtime pay, tipped overtime, tip makeup, accumulated sick leave, retroactive pay increases, and severance pay. Pay that does not constitute supplemental wages includes paid time off (PTO), vacation pay, and stipends.

While there is some flexibility around how supplemental wages are paid, they’re still subject to the same taxation as regular wages. Employers must report all supplemental wages paid to an employee in box 1 (wages, tips, other compensation) of their W-2, and must withhold the same federal and state taxes that they’d withhold from regular compensation. Supplemental wages also apply toward wage base calculations, as when determining Social Security and Medicare taxes.

 

As an employee, it’s important to take supplemental wages into account and report them when filing annual tax returns. Failing to do so could result in underpayment of taxes. If an employer is unsure how to handle this properly, many of the best payroll companies make it simple to handle so that tax time is manageable.

Using supplemental wages in a sentence

“Because the projects I work on generate a large number of leads for the sales team, I occasionally receive a bonus and must report these supplemental wages on my tax return.”

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