If your employer withheld 22% from a bonus, that wasn’t necessarily your tax rate.
In many cases, separately identified supplemental wages can be withheld at a flat 22% rate regardless of the employee’s actual tax bracket. For higher earners, the eventual tax liability may be substantially different from the amount withheld.¹,²
That gap is one of several tax-planning issues worth revisiting in 2026. The One Big Beautiful Bill Act made the 2017 tax rate structure permanent, and many high earners interpreted that as, “Nothing changed.” The rates did not. The top bracket still begins at $640,600 of taxable income for single filers and $768,700 for married couples filing jointly. What changed is much of the landscape surrounding those rates.¹
Some of what follows applies to anyone with a healthy income and a 401(k). Some matters only if you have equity compensation or are approaching retirement. Most become significantly harder to address after year-end.
Bonuses, commissions, severance, and many forms of equity compensation are considered supplemental wages. They follow withholding rules that often have little connection to your actual tax liability.²
An executive receives $300,000 of taxable equity compensation. Payroll withholds $66,000 using the 22% flat-rate method.
If that executive’s marginal federal income tax rate is 35%, the federal tax attributable to that income could be approximately $105,000 before considering state taxes, deductions, credits, or other tax interactions. The difference may become apparent when the year’s return is prepared.
For many higher-income households, safe harbor protection generally means paying either:
The alternative minimum tax (AMT) is a parallel tax calculation with its own rules and exemption structure.¹,³
Beginning in 2026:
For many taxpayers, this change will have little practical effect. For incentive stock option holders, it can become very significant.
If you exercise an incentive stock option and continue holding the shares through year-end:
For some incentive stock option holders, the lower phase-out thresholds and faster exemption reduction can cause AMT exposure sooner than under prior rules.¹,³
Spreading exercises across multiple years was often prudent before. In many cases, it is more important now.
Beginning in 2026, participants age 50 or older whose prior-year wages from the sponsoring employer exceeded $150,000 generally must make catch-up contributions on a Roth basis if their plan offers catch-up contributions. Pre-tax catch-up contributions are no longer available to those affected participants.⁴
The immediate tax deduction disappears. However, qualified Roth distributions can later be received free of federal income tax. For affected participants, this is a rule that must be incorporated into the broader tax strategy.
The state and local tax deduction limit increased substantially beginning in 2026.⁵
Inside that income range, an additional dollar of income not only creates additional tax but may also reduce available deductions.
For an itemizing taxpayer in the 35% bracket who is affected by the phase-out, the combined effect can create a simplified effective federal marginal rate of roughly 45.5%.
Tax planning is rarely about a single rule in isolation. AMT exposure, bonus income, stock sales, charitable giving, Roth conversions, Medicare premiums, and deduction limitations can all interact. The most effective planning typically comes from modeling multiple scenarios rather than evaluating each strategy independently.
For many executives, concentrated employer stock positions become a tax problem long before they become an investment problem.
Missouri allows qualifying individual taxpayers to subtract federally reported capital gains when calculating Missouri adjusted gross income. The Missouri Department of Revenue describes the subtraction as applying to both short-term and long-term capital gains, effective for individuals beginning January 1, 2025.⁶
For many Missouri residents, that can substantially reduce the state-level tax cost associated with selling appreciated investments. Any analysis performed before the change may need to be revisited.
If employer stock is held inside a qualified retirement plan, net unrealized appreciation treatment may be available following a qualifying event and a qualifying lump-sum distribution.⁹
Under the right circumstances, NUA treatment allows qualifying appreciation in employer stock to receive long-term capital gain treatment when the shares are sold rather than being taxed entirely as ordinary income.⁹
This is an area that typically warrants modeling rather than rules of thumb.
Nonqualified deferred compensation can be one of the most powerful planning tools available to highly compensated employees. It is also one of the least flexible.
Deferred compensation elections are heavily restricted once made. While some plans allow later modifications, changes generally must satisfy strict Section 409A requirements and often require significant advance notice.¹⁰
The more important question is often not how much compensation should be deferred. It is when the money returns.
A distribution scheduled years ago can eventually arrive in the same year as a business sale, Roth conversion, stock exercise, pension election, or Social Security start date. That interaction can materially change the tax outcome.
Participants in most unfunded nonqualified deferred compensation plans are generally unsecured creditors of the sponsoring company. Deferred compensation therefore remains subject to the employer’s financial strength and credit risk.¹⁰
Several charitable planning rules changed in 2026, and some traditional giving strategies became less efficient.⁷,¹¹
In practical terms, affected deductions may generate a federal tax benefit closer to 35% than 37%.⁷,¹¹
For taxpayers affected by the new limitation, the federal income-tax benefit associated with deductible charitable contributions may be reduced compared with prior years.⁷,¹¹
That makes thoughtful planning more important than ever.
Charitable carryovers from prior years may receive different treatment than newly created deductions. Review older carryforward balances before implementing a giving strategy.
For many households, the years immediately following retirement create unique tax-planning opportunities.
Income may decline temporarily before Social Security benefits and required minimum distributions begin or increase.
When that window exists, it may be an ideal time to evaluate:
The opportunity is easy to miss because there is rarely an obvious deadline attached to it. The window simply gets smaller each year until future income sources fully arrive.
The tax return records decisions already made. Most planning opportunities occur before December 31.
A stock option exercise affects AMT calculations. A Roth conversion affects taxable income. A stock sale can influence deduction limitations. Many of these decisions overlap in ways that are difficult to see without a coordinated projection.
Many strategies depend on decisions made before the year closes. Waiting until tax filing season often limits the planning opportunities available for the prior tax year.
At Gatewood Wealth Solutions, we believe executive tax planning is about more than reducing taxes. It’s about aligning compensation decisions, retirement planning, wealth management, and family goals into a coordinated strategy.
If you haven’t reviewed your 2026 tax position, now is the time.
Many of these strategies remain available before year-end. Few can be meaningfully implemented after the year has closed.
We’ll help you:
Sources
Important Disclosures:
This article is for educational and informational purposes only and should not be construed as tax, legal, or financial advice. Tax laws are complex and change frequently. The strategies discussed may not be suitable for all individuals or situations.
Tax laws, rates, and thresholds cited reflect law in effect as of September 2026, and are subject to change, clarification, or amendment. The Missouri capital gains deduction described reflects Missouri law as of that date. Several provisions referenced, including the expanded state and local tax deduction cap, are scheduled to change under current law. Always consult with a qualified tax professional before implementing tax strategies.
The hypothetical example provided is for illustrative purposes only and does not represent any specific individual or situation. Actual results will vary.
Gatewood Tax & Accounting provides comprehensive tax planning, preparation, and advisory services in coordination with Gatewood Wealth Solutions to deliver integrated financial, tax, and estate planning.