If an employee's supplemental wages exceed $1 million for the year, what flat tax rate applies?

The flat tax rate that applies to supplemental wages exceeding $1 million is 39.6%. This rate is established by the Internal Revenue Service (IRS) for high-income earners, reflecting a federal income tax bracket that targets those with significant earnings. Supplemental wages refer to income that is provided to an employee in addition to their regular wages, such as bonuses, commissions, or overtime.

Having a fixed tax rate for supplemental wages above this threshold simplifies the payroll process for employers. It helps ensure that high earners are taxed at a relatively higher rate, which aligns with progressive tax principles. The supplemental wage rate of 39.6% was designed to ensure that those who earn substantially more contribute a fair share to federal revenue.

Other rates or options might be associated with different tax brackets or specific circumstances but do not apply to the scenario presented in this question. Thus, 39.6% is the right choice when considering the taxation of supplemental wages above the $1 million mark.