![\"generating](\"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/wp-content\/uploads\/2022\/11\/generating-supplemental-income.jpg\")
<\/figure><\/div>\n\n\nWhile income from real estate, trusts, and other types of income fall into an IRS designation called supplemental income, the other examples aren\u2019t technically \u201csupplemental income,\u201d but things like bonuses, commissions, and even freelance income is sometimes called supplemental income in everyday language.<\/p>\n\n\n\n
Read on as we outline various types of supplemental income\u2014as defined by the IRS or otherwise\u2014and how they are taxed.<\/p>\n\n\n\n
<\/a>What is supplemental income?<\/strong><\/h2>\n\n\n\nWhile we defined supplemental income in basic terms above, it\u2019s easier to understand the concept if we break it down with actual examples. Supplemental income falls into a few categories:<\/p>\n\n\n\n
<\/a>1. Supplemental income (Schedule E income for supplemental income and loss)<\/h3>\n\n\n\nThis includes income generated from:<\/p>\n\n\n\n
\n- Business (Partnerships and S corporations)<\/li>\n<\/ul>\n\n\n\n
\n- Estates, trusts, and royalties<\/li>\n<\/ul>\n\n\n\n
\n- Rental real estate and residual interests in real estate mortgage investment conduits (REMICs)<\/li>\n<\/ul>\n\n\n\n
<\/a>2. Supplemental income for employees<\/h3>\n\n\n\n<\/a>If you\u2019re a traditional employee, you could get income outside of your normal paycheck that you consider supplemental income. The IRS considers these supplemental wages. Supplemental employee wages are wage payments that aren\u2019t regular pay. This could include:<\/p>\n\n\n\n\n- Bonuses: If you earn extra money from your employer\u2014during the holidays or as a result of a company\u2019s or your own success, you might get a bonus. Learn more about bonus tax rates<\/a>.<\/li>\n<\/ul>\n\n\n\n
\n- Commissions: Some employers pay a portion of total sale to the employee who made the sale. These funds are called commissions. For example, salespeople commonly earn merit-based commission as supplemental income.<\/li>\n<\/ul>\n\n\n\n
\n- Expense reimbursements: Fringe benefits like expense reimbursement is considered supplemental income. For example, if you incur some costs as a work-from-home employee for your internet or cell phone, your employer may reimburse you for those expenses.<\/li>\n<\/ul>\n\n\n\n
\n- Overtime pay: When you work beyond your normal number of hours per week as a non-exempt employee, you could get overtime pay, which can be considered supplemental wages.<\/li>\n<\/ul>\n\n\n\n
\n- Accumulation of Paid Time Off (PTO): If your employer pays out for unused PTO, you may receive additional wages.<\/li>\n<\/ul>\n\n\n\n
\n- Retroactive pay increases \/ Back pay \/ Severance pay: If your wage changes over time, it may count as supplementary income. (Learn more about severance and taxes<\/a>)<\/li>\n<\/ul>\n\n\n\n
\n- Prizes and award winnings: If you win a special award or distinction from your employer or a professional association that comes with a monetary incentive.<\/li>\n<\/ul>\n\n\n\n
\n- Payments for non-deductible moving expenses: If you move for a job, your employer may reimburse you for the non-deductible expenses.<\/li>\n<\/ul>\n\n\n\n
\n- Tips: Service-industry professionals could earn extra tips from customers, which are considered supplemental pay.<\/li>\n<\/ul>\n\n\n\n
\n- Taxable fringe benefits: Discretionary bonuses (including gift cards), income from exercise of nonstatutory stock options, taxable income from issuance or vesting of restricted stock, employer-provided cell phone (non-business use) and gym memberships qualify as supplemental employee income.<\/li>\n<\/ul>\n\n\n\n
<\/a>3. Independent contracting or side job supplemental income:<\/h3>\n\n\n\nIf you\u2019re working a side hustle, you may think of this as supplemental wages. Jobs like driving for a ridesharing service<\/a>, selling on an e-commerce site, or direct sales<\/a> gigs are all examples of what the IRS and internal revenue code considers independent contractor work.<\/p>\n\n\n\n<\/div>File with H&R Block to get your max refund<\/h3>\n
This includes income generated from:<\/p>\n\n\n\n
- \n
- Business (Partnerships and S corporations)<\/li>\n<\/ul>\n\n\n\n
- \n
- Estates, trusts, and royalties<\/li>\n<\/ul>\n\n\n\n
- \n
- Rental real estate and residual interests in real estate mortgage investment conduits (REMICs)<\/li>\n<\/ul>\n\n\n\n
<\/a>2. Supplemental income for employees<\/h3>\n\n\n\n
<\/a>If you\u2019re a traditional employee, you could get income outside of your normal paycheck that you consider supplemental income. The IRS considers these supplemental wages. Supplemental employee wages are wage payments that aren\u2019t regular pay. This could include:<\/p>\n\n\n\n
- \n
- Bonuses: If you earn extra money from your employer\u2014during the holidays or as a result of a company\u2019s or your own success, you might get a bonus. Learn more about bonus tax rates<\/a>.<\/li>\n<\/ul>\n\n\n\n
- \n
- Commissions: Some employers pay a portion of total sale to the employee who made the sale. These funds are called commissions. For example, salespeople commonly earn merit-based commission as supplemental income.<\/li>\n<\/ul>\n\n\n\n
- \n
- Expense reimbursements: Fringe benefits like expense reimbursement is considered supplemental income. For example, if you incur some costs as a work-from-home employee for your internet or cell phone, your employer may reimburse you for those expenses.<\/li>\n<\/ul>\n\n\n\n
- \n
- Overtime pay: When you work beyond your normal number of hours per week as a non-exempt employee, you could get overtime pay, which can be considered supplemental wages.<\/li>\n<\/ul>\n\n\n\n
- \n
- Accumulation of Paid Time Off (PTO): If your employer pays out for unused PTO, you may receive additional wages.<\/li>\n<\/ul>\n\n\n\n
- \n
- Retroactive pay increases \/ Back pay \/ Severance pay: If your wage changes over time, it may count as supplementary income. (Learn more about severance and taxes<\/a>)<\/li>\n<\/ul>\n\n\n\n
- \n
- Prizes and award winnings: If you win a special award or distinction from your employer or a professional association that comes with a monetary incentive.<\/li>\n<\/ul>\n\n\n\n
- \n
- Payments for non-deductible moving expenses: If you move for a job, your employer may reimburse you for the non-deductible expenses.<\/li>\n<\/ul>\n\n\n\n
- \n
- Tips: Service-industry professionals could earn extra tips from customers, which are considered supplemental pay.<\/li>\n<\/ul>\n\n\n\n
- \n
- Taxable fringe benefits: Discretionary bonuses (including gift cards), income from exercise of nonstatutory stock options, taxable income from issuance or vesting of restricted stock, employer-provided cell phone (non-business use) and gym memberships qualify as supplemental employee income.<\/li>\n<\/ul>\n\n\n\n
<\/a>3. Independent contracting or side job supplemental income:<\/h3>\n\n\n\n
If you\u2019re working a side hustle, you may think of this as supplemental wages. Jobs like driving for a ridesharing service<\/a>, selling on an e-commerce site, or direct sales<\/a> gigs are all examples of what the IRS and internal revenue code considers independent contractor work.<\/p>\n\n\n\n
<\/div>File with H&R Block to get your max refund<\/h3>
\n
- Taxable fringe benefits: Discretionary bonuses (including gift cards), income from exercise of nonstatutory stock options, taxable income from issuance or vesting of restricted stock, employer-provided cell phone (non-business use) and gym memberships qualify as supplemental employee income.<\/li>\n<\/ul>\n\n\n\n
- Tips: Service-industry professionals could earn extra tips from customers, which are considered supplemental pay.<\/li>\n<\/ul>\n\n\n\n
- Payments for non-deductible moving expenses: If you move for a job, your employer may reimburse you for the non-deductible expenses.<\/li>\n<\/ul>\n\n\n\n
- Prizes and award winnings: If you win a special award or distinction from your employer or a professional association that comes with a monetary incentive.<\/li>\n<\/ul>\n\n\n\n
- Retroactive pay increases \/ Back pay \/ Severance pay: If your wage changes over time, it may count as supplementary income. (Learn more about severance and taxes<\/a>)<\/li>\n<\/ul>\n\n\n\n
- Accumulation of Paid Time Off (PTO): If your employer pays out for unused PTO, you may receive additional wages.<\/li>\n<\/ul>\n\n\n\n
- Overtime pay: When you work beyond your normal number of hours per week as a non-exempt employee, you could get overtime pay, which can be considered supplemental wages.<\/li>\n<\/ul>\n\n\n\n
- Expense reimbursements: Fringe benefits like expense reimbursement is considered supplemental income. For example, if you incur some costs as a work-from-home employee for your internet or cell phone, your employer may reimburse you for those expenses.<\/li>\n<\/ul>\n\n\n\n
- Commissions: Some employers pay a portion of total sale to the employee who made the sale. These funds are called commissions. For example, salespeople commonly earn merit-based commission as supplemental income.<\/li>\n<\/ul>\n\n\n\n
- Bonuses: If you earn extra money from your employer\u2014during the holidays or as a result of a company\u2019s or your own success, you might get a bonus. Learn more about bonus tax rates<\/a>.<\/li>\n<\/ul>\n\n\n\n
- Rental real estate and residual interests in real estate mortgage investment conduits (REMICs)<\/li>\n<\/ul>\n\n\n\n
- Estates, trusts, and royalties<\/li>\n<\/ul>\n\n\n\n