Federal Supplemental Withholding Rates & the $1 Million Threshold (2026)
For 2026, federal withholding on supplemental wages such as bonuses and RSU vests is a flat 22% up to $1,000,000 of cumulative supplemental wages per year, a mandatory 37% on the portion above that, plus 6.2% Social Security (up to $184,500 of total wages) and 1.45%–2.35% Medicare.
Supplemental wages are payments that are not regular salary: bonuses, commissions, RSU vesting income, severance, back pay, taxable moving costs. Federal rules for withholding on them come from IRS Publication 15 (Circular E), Section 7, and have two tiers. The rates and the payroll taxes stacked on top for 2026:
| Tier | Rate (%) | Applies to | Employer discretion |
|---|---|---|---|
| Optional flat rate | 22 | Supplemental wages up to $1,000,000 cumulative per employer, per calendar year | Employer may instead use the aggregate method (combine with regular wages and withhold per W-4) |
| Mandatory rate | 37 | Portion of cumulative supplemental wages above $1,000,000 in the calendar year | None — 37% is required regardless of Form W-4 |
Verified as of July 13, 2026. Source: IRS Publication 15 (2026), Section 7 — Supplemental Wages. The 22%/37% rates track the fourth-lowest and highest income tax rates, made permanent by the One Big Beautiful Bill Act of 2025.
| Tax | Wage range (USD) | Employee rate (%) |
|---|---|---|
| Social Security (OASDI) | $0 – $184,500 of total annual wages | 6.20 |
| Medicare | All wages, no cap | 1.45 |
| Additional Medicare | Wages above $200,000 from one employer | 0.90 |
Sources: SSA contribution and benefit base ($184,500 for 2026, up from $176,100); IRS Topic 560 — Additional Medicare Tax. The $200,000 withholding trigger applies regardless of filing status; actual liability thresholds are $200,000 single / $250,000 joint / $125,000 married filing separately.
Why 22% is usually not your real rate
The flat rate is a payroll convenience calibrated to the middle of the bracket structure. Your actual tax on supplemental income is set by your marginal bracket. For 2026, a single filer crosses out of the 22% bracket at $105,700 of taxable income; a married couple filing jointly at $211,400. Salary alone puts many equity-compensated employees past those lines before a single share vests — which means every dollar of RSU income is taxed at 24%, 32%, 35%, or 37% while being withheld at 22%.
| Rate (%) | Single | Married filing jointly |
|---|---|---|
| 10 | $0 – $12,400 | $0 – $24,800 |
| 12 | $12,400 – $50,400 | $24,800 – $100,800 |
| 22 | $50,400 – $105,700 | $100,800 – $211,400 |
| 24 | $105,700 – $201,775 | $211,400 – $403,550 |
| 32 | $201,775 – $256,225 | $403,550 – $512,450 |
| 35 | $256,225 – $640,600 | $512,450 – $768,700 |
| 37 | over $640,600 | over $768,700 |
Source: Rev. Proc. 2025-32 (2026 inflation adjustments); standard deduction $16,100 single / $32,200 joint. Cross-checked against the Tax Foundation's 2026 bracket tables.
A concrete case: a single filer with $250,000 of salary who vests $100,000 of RSUs sits in the 35% bracket, so the vest generates roughly $35,000 of federal income tax. Payroll withholds 22% — $22,000 — leaving about $13,000 unpaid. Nothing about this is an error; it is how the two-tier system is designed. The gap simply becomes a balance due in April unless estimated payments or extra W-4 withholding close it earlier. Whether a gap triggers a penalty on top depends on the IRS safe-harbor thresholds.
The mandatory 37% tier works in the opposite direction: it removes discretion. Once cumulative supplemental wages from one employer pass $1 million in a calendar year, everything above the line must be withheld at the top rate even if the employee requests otherwise. For most people with large single-year equity events — an IPO lockup release, a large refresh vesting at once — the 37% tier actually brings withholding much closer to the true liability than the 22% tier does.
State withholding stacks on top of all of this and varies from 0% to 11.7% — see the 50-state supplemental rate table.
Withholding mechanics are general information, not tax advice. Your actual liability depends on your full return; confirm current figures with IRS Publication 15 or a qualified tax professional.
Common questions
- Why is my bonus taxed at 22 percent?
- 22% is the optional flat withholding rate the IRS lets employers apply to supplemental wages (bonuses, RSU vests, commissions) up to $1 million per year, per IRS Publication 15. It is a withholding shortcut, not a special tax — your actual tax on that income is set by your marginal bracket when you file.
- Is the 37% rate above $1 million mandatory?
- Yes. Once your cumulative supplemental wages from an employer pass $1,000,000 in a calendar year, the portion above the threshold must be withheld at 37%, regardless of your Form W-4.
- Do I get the extra bonus withholding back?
- If 22% withholding exceeds the tax you actually owe on the income, the difference comes back as a refund when you file. If your marginal rate is above 22% — common with significant RSU income — you owe the difference instead.
- Does Social Security tax apply to RSUs and bonuses?
- Yes. Supplemental wages are FICA wages: 6.2% Social Security up to the $184,500 wage base for 2026, plus 1.45% Medicare with no cap, plus 0.9% Additional Medicare withheld on wages above $200,000 from one employer.
- Can my employer withhold at my W-4 rate instead of 22%?
- Sometimes. If supplemental wages are paid combined with regular wages and not separately identified, the employer withholds on the total using the aggregate method. When they are identified separately, the employer may pick the 22% flat rate or the aggregate method — below $1 million the choice is the employer's, not yours.