At 64 He’ll Get a $90,000 Bonus in His Last Year of Work. His Employer Will Withhold 22%, His Bracket Is Higher, and the Difference Will Be Waiting in April
A $90,000 bonus lands and the pay stub shows federal tax already withheld, so most people assume the bill is settled. For workers in his bracket, that assumption costs thousands come April.
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The direct deposit lands, and there it is: a $90,000 bonus, the last one before he retires at 64. With the pay stub showing federal tax already taken out, he figures that part is covered, but for many people in his spot, it isn’t.
This surprise shows up all the time in a final working year: the bonus gets taxed at a flat rate on payday, while the real bill comes due in April. One CPA firm’s warning sums it up. On bonus taxes, employers withhold a flat 22%, and if your top rate is higher, you’ll owe the rest later.
Why 22% Comes Up Short on a Bonus Stacked on a Full Salary
Withholding is a down payment. It’s your employer’s estimate of your tax, sent to the IRS for you. When an employer pays a bonus separately from regular pay, it can withhold income tax from those wages at a flat rate. That optional flat rate is 22%. A 37% required rate applies only to bonus pay above $1M in a year, so it doesn’t apply to him.
That 22% figure leaves out everything else he made. The bonus sits on top of a full year’s salary, so it’s taxed at whatever rate that top layer of income hits.
His Numbers Show a Gap of Almost $6,000
Here are the assumptions: he files single, made a $180,000 salary, has no other income, and takes the 2026 standard deduction of $16,100. In 2026, single filers pay 24% on income over $105,700, 32% on income over $201,775, and 35% on income over $256,225.
His salary alone keeps him in the 24% band. The bonus pushes his taxable income to $253,900, so part of it is taxed at 24% and the rest at 32%. The federal tax the bonus actually adds comes to $25,770. At 22%, his employer withheld $19,800. That leaves a $5,970 shortfall. State withholding runs on its own rules, so he should check that line on the stub too.
He Can Owe in April and Still Avoid a Penalty
The IRS charges an underpayment penalty when you don’t pay in enough during the year. The way out is a safe harbor. He’s covered if his withholding and estimated payments equal at least 90% of this year’s tax or 100% of last year’s. If last year’s adjusted gross income was over $150,000, that second test rises to 110%.
His regular paychecks were probably withholding close to what he owed last year, and with the bonus withholding on top, he may clear the 110% bar without doing anything else. If he does, he just pays the gap in April with no penalty. If he doesn’t, the penalty works like interest on the shortfall, and he can still fix that before the year ends.
Four Moves to Make Before December 31
- Raise withholding on his last paychecks. He files a new Form W-4 and enters an extra dollar amount on the withholding line. This beats an estimated payment. Withholding counts as paid in equal parts on each due date through the year, even when it comes out in December.
- Make an estimated payment. It works, but it only counts from the day he pays it, so earlier quarters can still look short.
- Put more of the bonus into his 401(k), if his plan allows bonus contributions. The 2026 limit is $24,500, plus an $8,000 catch-up at 64. The larger $11,250 catch-up ends at 64. He made more than $150,000 in 2025, so his catch-up must go into a Roth, and that won’t reduce this year’s tax. If he still has room under the base limit, contributing about $18,700 pre-tax out of the 32% slice would cover the whole gap.
- Fund an HSA if he’s on a qualifying high-deductible plan. The 2026 limit is $4,400 for self-only coverage, plus a $1,000 extra contribution after 55. The limit drops to zero beginning with the first month you are enrolled in Medicare.
This Bonus Could Raise His Medicare Premiums Two Years Out
Medicare sets premiums using your tax return from two years earlier, so 2026 income drives 2028 premiums. Using 2026 thresholds, single filers above $109,000 pay a surcharge called IRMAA. Between $205,000 and $500,000, Part B costs $649.20 a month, compared with the standard $202.90. Salary plus bonus puts him in that tier even after maxing out a 401(k).
He can fix this. Retiring counts as a work stoppage, which is one of the qualifying life-changing events on Form SSA-44. He files it, estimating his lower retirement income. Social Security can drop him back to the standard premium (we detailed IRMAA and the other premium traps that catch retirees in a free Medicare guide).
Find This Number on His Pay Stub This Week
He should check the federal withholding line on his bonus stub. If it shows $19,800, he should plan for a gap of about $5,970 and fix it now with a new W-4, while December paychecks can still cover it. The risk is seeing money withheld and thinking that’s the whole tax.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
