What is the supplemental federal withholding rate for earnings over $1 million?

The supplemental federal withholding rate for earnings exceeding $1 million is set at 37%. This rate is established for high-income earners to ensure that the federal government collects an adequate amount of taxes from significant supplemental wages, which may include bonuses, commissions, and other forms of additional pay.

The rationale for this higher rate is that once an individual’s earnings surpass a certain threshold, they fall into a higher tax bracket, which is part of the progressive tax system in the United States. While there are varying basic tax withholding rates for specific types of payments, the 37% rate is specifically designated for large supplemental earnings, thereby ensuring that high earners contribute a fair portion relative to their income level.

The other options reflect rates that do not align with current IRS guidelines regarding supplemental withholding for such high earnings, reinforcing that 37% is indeed the correct figure established for this scenario.