In 2026, employers may use a 22% flat federal withholding rate for certain supplemental wages such as separately paid bonuses. The rate is a withholding mechanism, not necessarily the employee’s final tax rate. For high earners receiving large bonuses or equity compensation, comparing supplemental withholding with the household’s broader tax projection may reveal a potential difference. (IRS)
What Is the 22% Supplemental Withholding Rate?
The federal tax rules distinguish regular wages from certain supplemental wages.
Supplemental wages may include compensation such as bonuses, commissions, awards, and certain forms of equity-related compensation.
When supplemental wages are separately identified and certain requirements are met, an employer may generally use a flat 22% federal income-tax withholding rate for supplemental wages up to $1 million.
For supplemental wages exceeding $1 million during the calendar year, the excess generally becomes subject to mandatory withholding at 37%. (IRS)
Employers may also use another permitted method in some situations, so employees should review their actual pay statements rather than assume all supplemental income was withheld at 22%.
Why Can 22% Be Different From the Final Tax Liability?
Withholding and tax liability are different concepts.
Withholding is money paid toward the tax bill during the year.
The final federal income-tax liability depends on the taxpayer’s complete return, which may include:
- Salary
- Bonuses
- RSU income
- A spouse’s income
- Business income
- Interest and dividends
- Capital gains
- Deductions
- Credits
- Filing status
- Other taxable income
For someone whose overall income reaches federal marginal rates above 22%, a flat 22% withholding rate on a large supplemental payment could contribute to a shortfall.
But that does not mean everyone receiving a bonus at the 22% rate will owe additional tax.
Other withholding, deductions, credits, estimated payments, and household circumstances may offset the difference.
How Does This Apply to RSUs?
Restricted stock units generally create taxable wage income when they vest.
Suppose an employee has 1,000 RSUs vest when the stock is worth $100 per share.
The vesting event represents $100,000 of compensation before considering applicable taxes and withholding.
An employer may satisfy withholding by withholding cash, selling shares, or withholding a portion of the shares, depending on the plan and payroll process.
If the federal withholding associated with the vest does not fully align with the employee’s overall tax situation, there may be additional tax to address through other withholding or estimated payments.
The exact outcome depends on the employee’s complete circumstances.
Why Can Bonuses Produce the Same Issue?
Consider an executive whose salary already represents substantial taxable income and who later receives a $150,000 bonus.
If the bonus is withheld using the 22% flat method, $33,000 would be withheld for federal income tax from that bonus before considering other payroll-tax obligations.
That does not mean the final federal income tax attributable to the additional income will necessarily equal $33,000.
The household’s actual result depends on the complete tax return.
This is why the phrase “my bonus was already taxed” can be misleading.
More precisely, money was withheld toward taxes when the bonus was paid.
What Happens When Someone Has Both RSUs and a Bonus?
The coordination issue can become larger.
Suppose a high-income employee receives:
- $240,000 in salary
- $75,000 annual bonus
- $120,000 of RSUs at vesting
- $30,000 of realized investment gains
Each item may be handled differently.
The employee’s payroll system can account for wages paid by the employer, but it may not know about investment gains or other household income.
Rather than evaluating each event separately, a tax projection can combine expected total income with:
- Federal withholding
- Estimated payments
- Deductions and credits
- Investment activity
- Spouse’s income, if applicable
- Remaining compensation expected before year-end
What Can High Earners Review?
For each bonus or RSU vest, consider identifying:
- Gross amount of compensation
- Federal income tax withheld
- State income tax withheld
- Social Security and Medicare withholding
- Year-to-date wages
- Other supplemental compensation already received
- Expected remaining compensation
- Realized gains and losses
- Estimated payments already made
Then compare those figures against the household’s updated full-year projection.
Why Is This Especially Relevant for People Over 50?
At age 50 and beyond, compensation decisions may overlap with retirement planning.
Employees may be eligible for retirement-plan catch-up contributions. In 2026, changes to the Roth catch-up rules also affect certain higher-paid workers.
Cash retained from bonuses and equity compensation may therefore have competing uses:
- Tax payments
- Retirement contributions
- Investment diversification
- Debt reduction
- Near-retirement cash reserves
- Other financial goals
The tax question is only one part of the decision.
How Does Falcon Wealth Planning Approach Equity Compensation?
Falcon Wealth Planning is a Fee-Only fiduciary Registered Investment Adviser. Our CFP® professionals and CPAs work with clients to coordinate compensation, investment management, tax planning, retirement decisions, and cash-flow needs.
For households receiving bonuses or equity compensation, that may include incorporating those events into the broader financial plan rather than treating each as a stand-alone transaction.
Frequently Asked Questions
Is the 22% supplemental withholding rate a tax bracket?
No. It is a federal withholding method that may apply to certain supplemental wages. The taxpayer’s actual tax liability is determined through the full tax return.
Are all bonuses withheld at 22%?
No. The tax rules permit different withholding methods depending on how supplemental wages are paid and other circumstances.
Are RSUs taxable when they vest?
Generally, the value of RSUs becomes taxable wage income when the shares vest.
Can I make an estimated payment if my RSU withholding was insufficient?
Potentially. Whether an estimated payment is appropriate depends on total withholding, expected annual tax, prior payments, safe-harbor rules, and individual circumstances.
Schedule a No-Cost Financial Assessment
Bonuses and RSUs can affect taxes, investments, retirement contributions, and cash flow at the same time. A No-Cost Financial Assessment can help determine whether Falcon Wealth Planning’s coordinated fee-only fiduciary approach may be appropriate for your family’s financial situation.
