Supplemental wages are any pay outside your regular salary: bonuses, commissions, vested RSUs, exercised NSOs, severance, and similar lumps. The IRS gives employers a shortcut for withholding on them. Instead of running the amount through your W-4 settings, they can withhold a flat 22% for federal income tax, rising to 37% on supplemental pay above $1 million in a year (2026). Social Security, Medicare, and state tax still apply on top.
The flat rate is a convenience, not an estimate of what you owe. If your total income puts you in the 22% bracket, it lands close. If you are in the 32%, 35%, or 37% bracket, the 22% withheld leaves a gap that you settle on your tax return. On a $60,000 bonus for someone in the 35% bracket, withholding covers $13,200 but the tax is closer to $21,000, so about $7,800 is due in April.
The reverse can happen too. Someone in the 12% bracket who receives a big bonus is over-withheld and gets a refund.
The common mistake is reading the deposit and assuming taxes are handled. For anyone with meaningful bonus or stock income and a marginal rate above 22%, the deposit is not fully spendable. Setting aside the difference, or adjusting the W-4 to withhold extra from salary, closes the gap before it becomes a bill.