Why is so much tax withheld from my bonus?

The classic surprise: a $10,000 bonus shows up in payroll, and roughly $7,000 actually lands in your bank account. The deductions feel punitive, like the IRS is taxing bonuses harder than regular wages. The reality is more mundane — bonuses get a special withholding rate, not a special tax rate, and depending on your overall income that flat rate can be either too high or too low. This guide explains how the math works, why most high earners end up under-withheld on bonuses, and the W-4 lever that closes the gap before April.

The 22% supplemental rate, in plain English

The IRS classifies bonuses, commissions, severance, and stock vesting as supplemental wages — income paid outside the normal payroll cycle. Per IRS Publication 15 Section 7, employers withhold federal income tax on supplemental wages at a flat 22% for any amount up to $1,000,000 in supplemental income per year, and a flat 37%on every dollar above that. State income tax follows its own rules — some states have their own flat supplemental rate, others don't apply one at all.

The 22% figure is operational, not principled. Payroll has to cut a check fast and doesn't know what your annual income will eventually look like, so the IRS lets employers use a single flat rate as a withholding shortcut. Your actual federal income tax on the bonus is determined the same way as every other dollar you earn — by your filing status, total taxable income, and the bracket schedule. The difference between what was withheld and what you actually owe gets reconciled when you file your 1040.

When 22% is too much

For 2026, the 22% federal bracket runs from $50,400 to $105,700 for Single filers and $100,800 to $211,400 for Married Filing Jointly. If your taxable income lands below the 22% bracket, your marginal rate is 10% or 12%, and bonus withholding at 22% over-collects. The excess flows back to you at filing as part of your refund. No real harm — the federal government held a few hundred dollars of your money interest-free for a few months.

When 22% is too little — the more common case

For wage earners with bonus or RSU income, the more frequent problem is the opposite. If your taxable income lands above the 22% bracket — at 24%, 32%, 35%, or 37% — the supplemental rate under-withholds. The math:

• A Single filer with $200,000 of base salary plus a $50,000 bonus is in the 32% bracket. Their bonus owes 32% federal income tax, but payroll withheld 22%. That's a 10 percentage-point gap × $50,000 = $5,000 of unwithheld federal tax that becomes a balance-due at filing.
• A Married Filing Jointly couple in the 24% bracket with a $30,000 bonus owes ~$7,200 in federal tax on the bonus, and only $6,600 was withheld. Modest gap of $600.
• A Single filer in the 37% bracket with a $200,000 bonus owes $74,000 in federal tax on it but only $44,000 was withheld (22%). Gap of $30,000 — large enough to trigger an underpayment penalty if not covered.

This is the standard story for tech-sector employees with meaningful equity compensation: a moderate base salary at a normal withholding rate, plus annual or quarterly RSU vests withheld at 22%, ending up tens of thousands of dollars short on April 15. See why did I owe taxes this year? for the full diagnostic.

The over-$1M jump to 37%

Once your cumulative supplemental wages for the year cross $1,000,000, every additional dollar of supplemental income is withheld at 37% instead of 22%. The threshold is per-employee, per-year, and applies whether the supplemental income is one big lump or accumulated through many smaller bonuses or vests. For most filers this never matters; for executives and late-stage founders with large cash bonuses or RSU accelerations, the 22% → 37% rate jump mid-year is part of normal payroll reality.

The aggregate method (rare but worth knowing)

Some employers, particularly smaller ones, use the aggregate methodinstead of the supplemental flat rate. Under aggregate, the bonus is added to your most recent regular paycheck and withholding is recomputed on the combined total using your normal W-4 settings. This produces more accurate per-paycheck withholding for the bonus — usually closer to your actual marginal rate — but creates a bigger one-time withholding spike that can feel even more dramatic. Aggregate is the IRS's default; the 22% flat rate is allowed only when employers withhold it as a separate payment.

The fix: Step 4(c) extra withholding

Whether your bonus arrives in February or December, the W-4 lever to close any projected under-withholding gap is the same: Step 4(c) extra withholding. After a bonus posts:

• Open the Breakeven calculator, enter your year-to-date paychecks (including the bonus paycheck), and your current W-4.
• The projection shows your gap — how much you're on track to owe at filing if nothing else changes.
• Breakeven divides that gap by your remaining pay periods and gives you a Step 4(c) amount. File a new W-4 with that amount on Step 4(c) and payroll starts withholding the extra each paycheck through year-end.

The earlier in the year a bonus lands, the smaller the per-paycheck Step 4(c) amount needs to be — a $5,000 gap spread over 22 biweekly paychecks is ~$230 each; the same gap with 4 paychecks left is $1,250 each. Don't wait until December to file the new W-4.

RSUs deserve special attention

Restricted Stock Units (RSUs) are taxed as ordinary income at vest, withheld at the supplemental rate, and reported on Form W-2 with the rest of your wages. Two things make them especially likely to under-withhold:

• Size. A single quarterly vest can match or exceed your annual base salary. Being under-withheld by 10 points on a $200,000 vest is $20,000 of unwithheld tax.
• Sell-to-cover.Many RSU plans automatically sell shares at vest to cover the 22% withholding. The remaining shares are yours, but if your true tax rate is higher, the auto-sell didn't cover enough — and you can't request more shares be sold after the fact. The shortfall has to be paid in cash from your other income at filing.

For RSU-heavy compensation, run the calculator the same week each vest posts and adjust Step 4(c) immediately. The IRS safe-harbor rule (Pub 505) means a small under-payment is penalty-free, but a large RSU-driven gap typically blows past safe harbor and triggers an underpayment penalty if not covered.

Bottom line

Bonus and equity income aren't taxed differently — they just get withheld differently. The 22% supplemental rate is too low for anyone whose marginal bracket is above 22%, which is most filers receiving meaningful bonus or RSU income. Project the gap with the calculator, file a new W-4 with the recommended Step 4(c) amount, and the under-withholding closes across your remaining paychecks before filing.

For the math behind how Breakeven models all this, see the methodology; for the W-4 mechanics including Step 4(c) sizing rules, see the guide on what Step 4(c) does and how to size it.