What is the supplemental withholding rate applied to an employee's bonus over a million dollars?

The supplemental withholding rate for bonuses and other supplemental wages is determined by the IRS. As of the latest IRS guidelines, when an employee receives a bonus that exceeds $1 million, the supplemental withholding rate is set at 37%. This rate applies to the portion of the bonus that exceeds the million-dollar threshold; thus, any amounts above this will be withheld at this higher rate.

It is essential for employers to be aware of these specific thresholds and rates because proper tax withholding directly affects both employee obligations and company compliance with tax laws. The higher rate reflects the need for appropriate tax collection on significant supplemental earnings, ensuring that the withholding matches the potential tax liability resulting from substantial income.