US money guide
Why your bonus felt so much smaller than you expected
You were told $20,000. Around $12,000 landed. Nothing went wrong — but almost nobody explains what actually happened, and the most important part is that withholding is not the same as tax.
The flat 22% rule
The IRS treats bonuses as "supplemental wages." Most employers use the flat method: withhold 22% for federal tax on anything up to $1 million, and 37% above that. On top of that comes Social Security (6.2% up to the wage base), Medicare (1.45%), and your state tax if you have one. Stack those and a fifth to a third of the bonus can vanish before it reaches you.
Why RSUs feel even worse
When RSUs vest, the full market value counts as ordinary income that day — exactly like salary. Companies usually "sell to cover," selling a slice of your shares to pay the withholding, so you see fewer shares than you were granted.
The trap: many companies withhold at that same flat 22%. If you're a high earner in the 32% or 35% bracket, that isn't enough, and the shortfall shows up as an unexpected bill in April. Plenty of people discover this the hard way in their first year of meaningful equity.
Model your bonus and RSUs →See your real annual take-home with equity included, not just withholding.What you can actually do
- Check your withholding if you have large RSU vests — you may need to make an estimated payment or adjust your W-4 to avoid an underpayment penalty.
- Consider deferring into your 401(k) if your plan allows bonus deferral. Pre-tax dollars reduce the bill directly.
- Don't count vested shares as free money. They were income; the tax is real; and holding them concentrates your savings in the same company that pays your salary.
The one-line version
Your bonus wasn't taxed at 40%. It was withheld at a blunt flat rate, and the true number gets settled when you file. Knowing which direction you're out — owing or owed — is worth ten minutes with a calculator before April arrives.
Written in plain English by mytakehome.money. General information, not financial advice — check anything important at gov.uk or with a qualified adviser.