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Supplemental Income (or Wages)

Compensation received in addition to regular income. Supplemental income includes compensation from exercises of NQSOs and SARs and from restricted stock vesting (not ISO exercises or ESPP purchases), along with bonuses, commissions, overtime pay, and severance pay.

For federal purposes, income tax is withheld from supplemental wages at a flat 22% rate (but 37% for amounts of aggregate supplemental income in excess of $1 million during a calendar year). Supplemental income is also subject to Social Security, Medicare, and FUTA taxes. Each state has different rules on what type of income is considered supplemental wages and what tax rate, if any, applies.

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