Article
8 min read
A Complete Guide to Supplemental Tax Rates by State (2026)
US payroll
PEO
Author
Shannon Ongaro
Last Update
January 19, 2026
Table of Contents
Understanding supplemental pay in the US
Federal supplemental withholding rates in 2026
State supplemental withholding rates in 2026
States with specific supplemental rates or flat-rate guidance
States with no official supplemental rate (use standard tables)
States with no state income tax on wages
How to calculate supplemental tax withholding (step-by-step)
Example of supplemental tax withholding (2026)
Common supplemental tax mistakes (and how to avoid them)
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Key takeaways
- Supplemental wages—like bonuses, commissions, overtime, and severance—often follow special withholding rules at the federal and state level.
- In 2026, federal supplemental withholding remains 22% on supplemental wages up to $1 million USD, with a mandatory 37% rate on amounts above $1 million.
- State supplemental tax rates vary widely. Some publish a flat supplemental rate, others require withholding using standard wage tables (often via the aggregate approach), and some don’t tax wages at all.
How are bonuses taxed by state? It depends. Some states apply a flat supplemental withholding rate to bonuses, others require employers to tax bonuses using the employee’s regular income tax method, and several don’t have state-specific taxes at all.
On the surface, bonus taxation looks straightforward. But once you factor in supplemental vs. regular withholding rules, flat vs. progressive rates, local taxes, and special formulas, the differences become significant.
In this article, we break down exactly how each US state treats bonuses and other supplemental wages, so payroll teams can withhold correctly, avoid compliance issues, and set clear expectations with employees.
Understanding supplemental pay in the US
Supplemental pay, also called supplemental wages, is additional income an employee receives on top of their regular wages or salary. Many forms of compensation can count as supplemental wages. Examples commonly include:
- Bonuses
- Overtime pay
- Awards and prizes
- Commissions
- Accumulated and unused sick leave payouts
- Severance pay
- Vacation pay
- Tips
- Back pay
- Taxable fringe benefits
- Retroactive pay increases
This is not an exhaustive list. How a payment is classified and paid (separately or combined with regular wages) can influence which withholding method applies.
Federal supplemental withholding rates in 2026
Federal (IRS) supplemental withholding is unchanged for 2026:
- 22% flat rate on supplemental wages up to $1 million in a calendar year
- 37% mandatory rate on the portion of supplemental wages that exceeds $1 million in the calendar year
These federal withholding rules apply in addition to Social Security and Medicare withholding, plus any applicable state and local taxes.
State supplemental withholding rates in 2026
Below is a breakdown of each state’s supplemental tax rate as per the latest updates, not including aggregate methods. State withholding rules change frequently. Always confirm the latest instructions published by the state tax agency for the year you’re running payroll.
| State | Which rate should be applied? | Rate / Notes |
|---|---|---|
| Alabama | State supplemental rate | 5.0% |
| Arizona | Regular/flat state withholding (no separate supplemental) | Flat 2.5% |
| Arkansas | State supplemental rate | 3.9% |
| California | State supplemental rate | 10.23% (bonus/stock); 6.6% (other) |
| Colorado | Regular/flat state withholding (no separate supplemental) | Flat 4.4% |
| Connecticut | Regular state income tax rate | No supplemental rate; use regular method |
| Delaware | Regular state income tax rate | With regular wages, tax together; if paid separately, annualize |
| District of Columbia | Regular/flat state withholding (no separate supplemental) | Based on regular progressive income tax brackets (when following optional percentage method) |
| Florida | Federal only | No state wage tax |
| Georgia | Regular/flat state withholding (no separate supplemental) | Flat 5.09% |
| Hawaii | Regular state income tax rate | No supplemental rate listed |
| Idaho | Regular/flat state withholding (no separate supplemental) | Flat 5.3% |
| Illinois | Regular/flat state withholding (no separate supplemental) | Flat 4.95% |
| Indiana | Regular/flat state withholding (no separate supplemental) | 2.95% + local |
| Iowa | State supplemental rate | 3.8% |
| Kansas | State supplemental rate | 5.0% |
| Kentucky | Regular/flat state withholding (no separate supplemental) | Flat 3.5% |
| Louisiana | Regular/flat state withholding (no separate supplemental) | 3% |
| Maine | State supplemental rate | 5.0% |
| Maryland | State supplemental rate | 6.5% + local |
| Massachusetts | Regular/flat state withholding (no separate supplemental) | 5.0% (+ 4% surtax threshold) |
| Michigan | Regular/flat state withholding (no separate supplemental) | Flat 4.25% |
| Minnesota | State supplemental rate | 6.25% |
| Mississippi | Regular/flat state withholding (no separate supplemental) | Flat 4.0% |
| Missouri | State supplemental rate | 4.7% |
| Montana | State supplemental rate | 5.0% |
| Nebraska | State supplemental rate | 3.5% |
| Nevada | Federal only | No state wage tax |
| New Hampshire | Federal only | No wage income tax |
| New Jersey | Regular state income tax rate | No supplemental rate listed |
| New Mexico | State supplemental rate | 5.9% |
| New York | State supplemental rate | 11.7% (plus NYC/Yonkers where applicable) |
| North Carolina | State supplemental rate | 4.09% (flat rate method) |
| North Dakota | State supplemental rate | 1.5% |
| Ohio | State supplemental rate | 2.75% |
| Oklahoma | State supplemental rate | 4.5% (highest withholding rate) |
| Oregon | State supplemental rate | 8.0% |
| Pennsylvania | Regular/flat state withholding (no separate supplemental) | 5.99% |
| Rhode Island | State supplemental rate | 5.99% |
| South Carolina | Regular state income tax rate | No supplemental rate; top withholding rate 6.0% |
| South Dakota | Federal only | No state wage tax |
| Tennessee | Federal only | No state wage tax |
| Texas | Federal only | No state wage tax |
| Utah | Regular/flat state withholding (no separate supplemental) | Flat 4.5% |
| Vermont | State supplemental rate (formula) | 30% of federal withholding; 6% for NQDC plan payments |
| Virginia | State supplemental rate | 5.75% |
| Washington | Federal only | No state wage tax |
| West Virginia | Regular state income tax rate | No single supplemental rate; annual-table method |
| Wisconsin | State supplemental rate (tiered) | Tiered by annual gross |
| Wyoming | Federal only | No state wage tax |
States with specific supplemental rates or flat-rate guidance
The following states have a defined flat supplemental rate, special rate, formula, or explicit flat-rate option:
- Alabama (5.0%)
- Arizona (2.5% flat)
- Arkansas (3.9%)
- California (10.23% bonus/stock; 6.6% other)
- Colorado (4.4% flat)
- Georgia (5.09% flat)
- Idaho (5.3% flat)
- Illinois (4.95% flat)
- Indiana (2.95% + local)
- Iowa (3.8%)
- Kansas (5.0%)
- Kentucky (3.5% flat)
- Louisiana (3.0% flat)
- Maine (5.0%)
- Maryland (6.5% + local)
- Massachusetts (5.0% flat; 4% surtax above threshold)
- Michigan (4.25% flat)
- Minnesota (6.25%)
- Mississippi (4.0% flat)
- Missouri (4.7%)
- Montana (5.0%)
- Nebraska (3.5%)
- New Mexico (5.9%)
- New York (11.7% + NYC/Yonkers where applicable)
- North Carolina (4.09% flat)
- North Dakota (1.5%)
- Ohio (2.75%)
- Oklahoma (4.5%)
- Oregon (8.0%)
- Pennsylvania (5.99% flat)
- Rhode Island (5.99%)
- Utah (4.5% flat)
- Vermont (30% of federal withholding; 6% for NQDC)
- Virginia (5.75%)
- Wisconsin (tiered by annual gross)
Note: Some of the rates above reflect a state’s flat income tax on all wages (not a special “supplemental-only” rate), but payroll teams still use them as a practical flat-rate reference for separately identified supplemental wages.
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States with no official supplemental rate (use standard tables)
These states do not publish a specific supplemental rate. In most cases, employers aggregate and withhold using standard state tables:
- Connecticut
- Delaware
- Hawaii
- New Jersey
- South Carolina
- West Virginia
States with no state income tax on wages
These states have no state income tax withholding on wages (N/A in the table above):
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Reminder: Even where a state has no wage income tax, other payroll programs may apply (for example, Washington’s LTC program), and local taxes may apply in some jurisdictions.
How to calculate supplemental tax withholding (step-by-step)
Payroll teams typically calculate supplemental withholding in two layers:
- Federal withholding using either the percentage (flat rate) method or the aggregate method
- State and local withholding based on where the employee works (and, where applicable, resides)
The right approach depends on how the payment is made and how your state requires withholding.
Step-by-step: Percentage (flat rate) method
Use this approach when supplemental wages are paid separately or separately identified (for example, a bonus line item on a pay statement).
- Identify the supplemental amount
- Example: a $5,000 bonus
- Apply the federal flat rate
- $5,000 × 22% = $1,100 federal income tax withheld (unless the employee is over the $1M threshold)
- Apply the state rule
- If the state uses a flat supplemental rate, multiply the supplemental amount by that percentage
- If the state has no official supplemental rate, withhold using the standard wage tables
- Add FICA and any local taxes
- Social Security (6.2% up to the annual wage base) and Medicare (1.45%, plus Additional Medicare Tax where applicable), plus any city/local income tax
- Estimate net pay
- Net supplemental pay = gross supplemental wages − (federal + state + local + FICA withholding)
Step-by-step: Aggregate method
Use this approach when supplemental wages are combined with regular wages in a single payment, or when a state requires withholding using standard tables.
- Add supplemental wages to the employee’s regular wages for the period
- Calculate withholding on the combined amount using standard federal and state wage tables, using the employee’s W-4 Form and any state withholding forms
- Subtract the withholding that would have applied to regular wages alone
- The difference is the amount withheld from the supplemental portion
Worked example: flat vs aggregate (what changes)
An employee earns:
- Regular wages: $2,000 this pay period
- Bonus: $1,000 paid on the same paycheck
If the bonus is separately identified and flat method is allowed:
- Federal bonus withholding: $1,000 × 22% = $220
- State withholding depends on the state’s supplemental rule
- FICA still applies (subject to limits)
If the aggregate method is used:
- Withholding is calculated on $3,000 total, then you back out what would have applied to $2,000
- Aggregate withholding may be higher upfront because the combined amount can move the employee into higher withholding for that pay period
- Final liability is reconciled when the employee files their tax return
Estimating net pay after supplemental taxes
To estimate take-home pay from a bonus or commission:
- Start with gross supplemental wages
- Subtract: federal withholding + state/local withholding + FICA
Remember: withholding ≠ final tax liability—employees may receive a refund (or owe more) when they file
Example of supplemental tax withholding (2026)
An employee in California receives a $1,000 bonus in addition to their regular wages. The bonus is paid separately (or separately identified) and withheld using the percentage method.
Deductions include:
- Federal supplemental withholding: 22%
- California bonus/stock supplemental withholding: 10.23%
- Social Security: 6.2% (up to the wage base)
- Medicare: 1.45% (plus Additional Medicare Tax where applicable)
| Tax Type | Rate | Amount Withheld |
|---|---|---|
| Federal Income Tax | 22% | $220.00 |
| California Income Tax | 10.23% | $102.30 |
| Social Security | 6.2% | $62.00 |
| Medicare | 1.45% | $14.50 |
| Total Withholding | 39.88% | $398.80 |
| Net Bonus | — | $601.20 |
This example does not include potential additional deductions such as benefits, retirement contributions, garnishments, or California SDI. If the aggregate method is used (bonus combined with wages), the tax withheld could differ based on the employee’s total pay and withholding elections.
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Common supplemental tax mistakes (and how to avoid them)
Even experienced payroll teams can run into avoidable issues with supplemental withholding—especially in multi-state payroll.
Applying the wrong method (flat vs standard tables)
Some states provide flat supplemental rates, while others expect you to withhold using standard tables. Using the wrong approach can cause under- or over-withholding.
Ignoring local income taxes
Local taxes can apply to wages and supplemental pay in certain jurisdictions. Confirm whether city/county taxes apply to bonuses and commissions.
Misclassifying compensation
Severance, accrued leave payouts, taxable fringe benefits, awards, and some tip reporting situations can still require withholding.
Not reflecting 2026 rate changes
Several states in the 2026 table above have updated rates effective January 1, 2026 (including Georgia, Idaho, Iowa, Kentucky, Mississippi, Missouri, Montana, Ohio, and Oklahoma). Build annual rate review into your payroll calendar.
Weak documentation for audit readiness
Keep records of:
- How the payment was classified (earning type)
- Which method was used (percentage vs aggregate)
- Which state rule applied (flat rate vs standard tables)
- The version/source of the rate table used for the pay run
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Disclaimer: This article is provided for general informational purposes and should not be treated as legal or tax advice. Rates are accurate at the time of publishing. Consult a professional before proceeding.
FAQs
Are bonuses taxed at 40%?
Bonuses are not taxed at 40%, but they are often withheld at a higher rate than regular pay, which can make it feel like the tax is higher.
For federal income tax, if your bonus is paid separately (or separately identified), employers typically withhold at a flat 22% rate for amounts up to $1 million. If supplemental wages exceed $1 million in a calendar year, the amount over $1 million is withheld at 37%.
When you add Social Security (6.2% up to the wage base), Medicare (1.45%, plus Additional Medicare Tax where applicable), and state/local taxes, total withholding can approach or exceed 40% in some jurisdictions.
This is withholding—your actual tax owed is based on total income for the year, and any excess withheld may be refunded when you file your tax return.
Why is supplemental income taxed so high?
Supplemental income is often withheld at higher rates because it’s irregular and can increase withholding for the pay period.
The IRS requires specific withholding approaches to reduce the risk of underpayment at year-end. In 2026, the standard federal flat withholding rate for many types of supplemental wages is 22% (or 37% for amounts above $1 million).
Social Security, Medicare, and state/local income taxes are also withheld, which increases total withholding from supplemental pay.
How do I calculate supplemental tax withholding for bonuses and commissions?
If supplemental wages are paid separately (or separately identified), many employers use the federal percentage method: withhold 22% up to $1 million (and 37% over $1 million), then apply the employee’s state rule—either a flat supplemental rate or standard wage tables—plus FICA and any applicable local taxes.
If supplemental wages are combined with regular wages in one check (or if your state requires standard tables), employers often use the aggregate method to calculate withholding.
Which states have their own supplemental tax rates?
In 2026, several states publish a flat supplemental rate (or defined flat-rate guidance) for supplemental wages, including California, Minnesota, New York, Ohio, Oregon, and Virginia. Other states have no official supplemental rate and generally require withholding using standard state tables, while some states don’t tax wages at all.
Always confirm the method and rate in current state withholding instructions, as state rules can change.
How do supplemental tax rates affect net bonus pay?
Supplemental tax rates affect how much of a bonus an employee actually receives in their paycheck. Between federal withholding (often 22%), state/local withholding, Social Security, and Medicare, total withholding can be significant—though any over-withholding is typically reconciled when the employee files their tax return.
Are overtime, vacation payouts, and severance treated as supplemental wages?
Often, yes. Many employers treat overtime, vacation payouts, back pay, severance, and taxable fringe benefits as supplemental wages for withholding purposes—especially when paid irregularly or separately identified.
Because state rules can differ, confirm how your payroll system classifies these earnings and whether your state requires standard table withholding or permits a flat rate approach.
Are commissions taxed differently?
Commissions are typically treated as supplemental wages. If commissions are paid as part of regular wages, they are withheld based on standard wage tables and the employee’s W-4.
If paid separately (or separately identified), commissions are often withheld using the federal flat rate method (22% up to $1 million, 37% over $1 million), plus the applicable state rule and FICA. The employee’s final tax liability is based on total taxable income for the year.
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.
