“Well, They Withhold Bonus Income at Higher Amounts…”…They Do, But It Still May Not Be Enough

If you’ve ever opened your tax return, saw you owed more than expected, and thought:

“Wait — they already withheld taxes on my RSUs and bonus!”

You’re not wrong. They did. Just… not enough.

Every year, I see high earners engineers, managers, executives get blindsided by this. They’re careful savers, they max out retirement accounts, and they check their paystubs. Yet come April, they’re still writing a check to the IRS. Sometimes 6 figure checks.

The reason? A hidden mismatch between how your income is paid and how it’s taxed.

I call it the RSU & Bonus Withholding Gap

The Flat 22% Rule: Why It Happens

RSUs, bonuses, commissions, and even unused vacation payouts are considered “supplemental income.”

Instead of using your real tax bracket, the IRS gives employers an option apply a flat withholding rate:

• 22% for supplemental income under $1 million

• 37% for the portion over $1 million

  
  

It’s simple for payroll, but it’s not accurate for you.

If your total income already puts you in a higher bracket, that 22% (or even 37%) rarely matches what you actually owe once the year is over.

That’s how high earners can find themselves under withheld by thousands, even when everything looks fine on paper.

2025 Federal Income Tax Brackets (Married Filing Jointly)

Bracket	Taxable Income Range
10%	$0 – $23,850
12%	$23,851 – $96,950
22%	$96,951 – $206,700
24%	$206,701 – $394,600
32%	$394,601 – $501,050
35%	$501,051 – $751,600
37%	Over $751,600

Quick Clarification: How Tax Brackets Actually Work

A lot of people hear “higher bracket” and assume that once they cross into it, all their income gets taxed at that higher rate.

That’s not how it works.

The U.S. system is progressive — meaning you pay each rate only on the income that falls within that bracket.

So if your household income moves from the 24% to the 32% bracket, only the dollars above that threshold are taxed at 32%. Everything below still enjoys the lower rates.

That distinction matters because your RSUs and bonuses are often what push those top layers of income into higher brackets  where the gap between 22% withholding and your real tax rate is widest.

Real Stories from Planning Meetings: But It Still May Not Be Enough

Sarah’s story:

Sarah earns around $220,000 and gets $80,000 of RSUs vesting each year. Her company withheld 22% when the RSUs vested  but because her total income placed her in a higher bracket, she owed over $10,000 at tax time.

She didn’t do anything wrong  she just got caught in the withholding gap.

Mark’s story:

Mark earns $190,000 and got a $50,000 performance bonus. Payroll withheld 22%, but his total income landed in a higher bracket. The result? A few thousand in unexpected taxes owed.

And for high earners, the gap can get extreme.

A client with roughly $1 million in RSUs vesting one year saw payroll withhold $220,000 (22%), while their actual federal liability on that income was well over $330,000 after layering on salary, spouse income, and investment gains.

Payroll didn’t make a mistake  they followed the IRS rules. The problem is the rules don’t reflect real life.

Why This Matters

The flat-rate system made sense decades ago when most people earned only a salary. But for today’s professionals where income includes RSUs, bonuses, dual earners, and investment income  the gap between withheld and owed taxes can grow quickly.

That’s why you can have what looks like “plenty of withholding” and still owe thousands come April.

How to Fix It

Here’s how to close that gap before tax season surprises you:

1. 
   

   Run a projection early.

   Don’t wait until April. Review your total income by late summer or fall to see where your tax bill is heading. This may help reduce or avoid underpayment penalties

2. 
   

   Adjust your regular paycheck withholding.

   HR can increase your W-4 withholding to cover the shortfall from RSUs or bonuses.

3. 
   

   Make quarterly estimated payments.

   Simple, predictable, and penalty-free if done correctly.

4. 
   

   Time income and deductions strategically.

   If you know you’ve got a heavy income year, line up deductions   charitable giving, Roth conversions, or larger retirement contributions.

5. 
   

   Coordinate your planner and CPA.

   Taxes, cash flow, and investments all connect. Planning together keeps surprises to a minimum.

   
   

The Bottom Line

RSUs and bonuses are incredible wealth builders — but the tax system wasn’t designed for them.

So the next time someone says, “They withhold bonuses at higher amounts now,” you’ll know the truth:

They do but it still may not be enough.

At Finance Roadmap Planning, I help clients bridge the gap between payroll and real life  making sure taxes, cash flow, and investments all move in the same direction.

Any attachments are for informational purposes only. Investing involves risk. Principal loss is possible. Past performance is no guarantee of future success. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein. Different funds will have different fees and expenses. An investor should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. The highest applicable fee GWA may charge is 1.5%.

Investment advisory services offered through Guardian Wealth Advisors D/B/A Finance Roadmap Planning, an investment advisor registered with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about GWA’s investment advisory services can be found in its Form ADV Part 2 or Form CRS, which is available upon request. (GWA-25-99)