Intro: You’re not overpaying taxes — you’re overpaying withholding.
If you got a raise, a bonus, RSUs, or a second income stream, payroll withholding can drift out of sync fast. This is rarely a “budgeting” issue. It’s usually:
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Policy moves: IRS inflation adjustments shift brackets, thresholds, and the standard deduction for tax year 2026.
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Software defaults: HR systems keep last year’s W-4 assumptions until you change them.
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Income spikes: bonuses/RSUs don’t behave like steady wages.
Official baseline for 2026 inflation adjustments (standard deduction, AMT, and more): [IRS Newsroom: IRS releases tax inflation adjustments for tax year 2026].
Key takeaways (scan this first)
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Standard deduction (2026): $16,100 (Single/MFS), $32,200 (MFJ), $24,150 (HOH).
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High-earner hazard: bonus/RSU withholding often defaults to a flat 22%—which can create a gap if your marginal rate is 32–37%.
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Execution lever: the simplest fix is adding a flat dollar amount on W-4 Step 4(c) (Extra Withholding).
Snippet-ready summary table (2026)
| Item | Single | Married Filing Jointly | Head of Household |
|---|---|---|---|
| Standard Deduction | $16,100 | $32,200 | $24,150 |
(Use this as your baseline before you touch payroll settings.)
Step 0: Diagnosis (pick your lane in 30 seconds)
A) W-2 employee (salary only)
→ Go to Step 1 (W-4 reset)
B) W-2 + bonus/RSUs/commission
→ Go to Step 2 (the 22% trap + spike-proofing)
C) Self-employment / side income / large investment income
→ Go to Step 3 (estimated tax basics)
D) High-earner household (AGI > $150k, or bracket-sensitive)
→ Don’t skip Step 4 (state tax + high-income checklist)
Step 1: The 10-minute W-4 reset (most people only need this)
Your goal is simple: make withholding match reality without waiting for a surprise bill.
Do this:
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Grab your latest paystub and last year’s return (or transcript).
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Fill out an updated W-4 using your real situation (filing status, dependents, other income).
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Fastest “dial” for most people: enter a flat dollar amount on Step 4(c) (Extra Withholding) so every paycheck patches the gap.
Official W-4 form (so you see the exact field label, including Step 4(c)): [IRS PDF: Form W-4, Employee’s Withholding Certificate].
💡 Waiting for last year’s refund? If you are fixing this because you overpaid last year, check when your money is coming back.
👉 [2026 IRS Refund Schedule: When Will You Get Paid?]
Step 2: Bonus/RSU fix (where high earners get burned)
⚠️ The “22% Trap” (this is the reason you end up owing)
Payroll systems typically withhold federal income tax on bonuses/RSUs as “supplemental wages” at a flat 22% (generally up to $1 million of supplemental wages for the year). Amounts above that threshold are generally withheld at 37%.
[IRS: Publication 15 (Circular E), Employer’s Tax Guide — Supplemental wages withholding (22% / 37%)]
Why this hurts:
If your real marginal bracket is 32%, 35%, or 37%, you’re automatically under-withholding by roughly 10–15% on every bonus dollar (before even thinking about state tax).
Fix: Patch the gap using W-4 Step 4(c)
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Estimate your “gap rate” = (your marginal rate) − 22%.
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Example: 32% − 22% = 10% gap.
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Multiply: bonus amount × gap rate = what you need to cover.
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Add that amount via W-4 Step 4(c) (Extra Withholding) either:
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spread across the remaining paychecks, or
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concentrated in bonus/vesting months.
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(You’re not changing your taxes—just prepaying enough to avoid a springtime surprise.)
Step 3: Estimated tax basics (if you have non-wage income)
If you have meaningful non-wage income (self-employment, interest/dividends, capital gains), you may need estimated tax payments instead of relying on payroll alone.
Official IRS guidance: [IRS: Pay as you go—withholding & estimated taxes].
Step 4: High earner checklist (the “authority” layer)
1) Don’t forget your State W-4
Federal adjustments don’t always sync with state payroll settings—especially in high-tax states like California or New York. In many places, you must file a separate state withholding form.
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California uses DE 4 for state withholding.
[California EDD PDF: Employee’s Withholding Allowance Certificate (DE 4)]
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New York uses IT-2104 for state withholding.
[New York Tax Department PDF: IT-2104 (2026) Employee’s Withholding Allowance Certificate]
Action: after you fix federal withholding, check your payroll portal for “State withholding” and update the relevant state form too.
💰 Another 2026 Update for High Earners
Since you are adjusting payroll for taxes, make sure your 401(k) contribution is also set to hit the new $24,500 limit.
👉 [401(k) Limit Is $24,500 in 2026: The Max-Out Plan]
FAQ (Featured Snippet Targets)
Q1) What’s the standard deduction for 2026?
For tax year 2026, the IRS lists the standard deduction as $16,100 (Single/MFS), $32,200 (MFJ), and $24,150 (HOH).
Q2) Why do high earners owe after bonuses/RSUs?
Because payroll often withholds federal income tax on “supplemental wages” at a flat 22% (generally up to $1 million), which can be far below a 32–37% marginal bracket.
Q3) Where do I add extra withholding on the W-4?
Use Step 4(c) (Extra Withholding) on Form W-4 to add a flat dollar amount per paycheck.
Q4) Do I need a separate form for state withholding?
Often, yes. For example, California uses DE 4 and New York uses IT-2104—state settings may not match your federal W-4 automatically.
Wrap-up (the shortest path to “I did this right”)
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Fix your federal withholding fast with W-4 Step 4(c)—it’s the simplest dial.
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If you get bonuses/RSUs, assume the 22% supplemental wage withholding is underpaying for you and patch the gap.
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High-tax states matter: update your state withholding form (CA DE 4 / NY IT-2104) after you adjust federal.
Disclaimer
Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Tax laws and inflation-adjusted amounts can change. Consult with a qualified CPA or financial advisor before making decisions.