Executive Tax Planning in 2026: 8 Moves to Understand Before Year-End

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. 

1. Your Bonus Was Withheld at 22%. Your Bracket Isn’t 22%. 

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 

What Happens 

• Employers may withhold federal income tax at a flat 22% rate on separately identified supplemental wages.² 
• Once cumulative supplemental wages from the same employer exceed $1 million during the year, withholding on the excess generally increases to 37%.² 
• The withholding rate does not determine your final tax liability.² 

A Hypothetical 

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. 

Action Steps 

1. Review cumulative supplemental wages year-to-date. 
2. Compare projected tax liability with actual withholding. 
3. Confirm you’ve satisfied an estimated tax safe harbor. 

For many higher-income households, safe harbor protection generally means paying either: 

• 90% of the current year’s tax liability, or 
• 110% of the prior year’s tax liability if prior-year AGI exceeded $150,000.⁸ 

Watch Out For 

• Underpayment penalties can apply even when the full balance is ultimately paid with the tax return.⁸

2. Why the AMT Got Harder for Stock Option Holders

The alternative minimum tax (AMT) is a parallel tax calculation with its own rules and exemption structure.¹,³ 

Beginning in 2026: 

• The exemption is $90,100 for single filers and $140,200 for married couples filing jointly.¹,³ 
• The exemption begins phasing out at $500,000 of alternative minimum taxable income for single filers and $1 million for joint filers.¹,³ 
• The phase-out rate increased from 25 cents on the dollar to 50 cents.³ 
• The exemption is fully exhausted at approximately $680,200 and $1,280,400, respectively.¹,³ 

For many taxpayers, this change will have little practical effect. For incentive stock option holders, it can become very significant. 

How It Works 

If you exercise an incentive stock option and continue holding the shares through year-end: 

• The bargain element, representing the difference between fair market value and exercise price, generally becomes an AMT adjustment. 
• No shares have been sold. 
• No cash has been received. 
• The adjustment may still increase AMT exposure. 

Why It Matters 

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.

3. If You Earned More Than $150,000, Your Catch-Up Contributions Changed

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 

2026 Limits 

• $24,500 employee elective deferral⁴ 
• $8,000 catch-up contribution for age 50+⁴ 
• $11,250 catch-up contribution for ages 60–63, replacing rather than supplementing the $8,000 amount⁴ 
• $72,000 employee and employer contribution limit before catch-up contributions⁴ 

Why It Matters 

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. 

Watch Out For 

• The determination is generally based on prior-year Social Security wages from the sponsoring employer, often reflected in Box 3 of Form W-2.⁴ 
• The test applies separately for each employer rather than across a household.⁴ 
• Because the rule is based on employment wages, many partners and self-employed individuals will not be affected in the same manner as W-2 employees.⁴ 
• If your plan does not currently offer Roth contributions, ask your benefits team whether plan amendments are being implemented. 

4. Why Some Income Between $505,000 and $606,000 Faces a Higher Effective Tax Cost

The state and local tax deduction limit increased substantially beginning in 2026.⁵ 

The New Rules 

• The cap, which was $10,000 before the One Big Beautiful Bill Act, is $40,400 for 2026.⁵ 
• Above $505,000 of modified adjusted gross income, the deduction begins phasing back down.⁵ 
• The reduction equals 30 cents for each additional dollar of income.⁵ 
• The cap eventually returns to its $10,000 floor at approximately $606,333 of modified adjusted gross income.⁵ 

Why It Matters 

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%. 

Watch Out For 

• The phase-out is based on modified adjusted gross income, not taxable income.⁵ 
• The increased deduction limit is scheduled to revert to $10,000 in 2030 under current law.⁵ 

A Larger Point 

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.

5. Selling Employer Stock Costs Less in Missouri Than It Used To

For many executives, concentrated employer stock positions become a tax problem long before they become an investment problem. 

The Missouri Change 

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. 

Net Unrealized Appreciation (NUA) 

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 

Watch Out For 

• NUA treatment requires careful execution.⁹ 
• Company stock generally must be distributed as part of a qualifying lump-sum distribution.⁹ 
• Rolling employer stock into an IRA can eliminate the opportunity to use NUA treatment on that stock later.⁹ 
• Whether NUA creates a better outcome depends heavily on cost basis, expected holding period, tax bracket, and future plans. 

This is an area that typically warrants modeling rather than rules of thumb. 

6. The Election You Make Once and Live With for Years 

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 

Why It Matters 

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. 

Watch Out For 

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 

7. What Changed About Charitable Giving

Several charitable planning rules changed in 2026, and some traditional giving strategies became less efficient.⁷,¹¹ 

What’s New 

• Itemized charitable deductions are now subject to a 0.5% AGI floor.⁷ 
• A new limitation reduces the value of certain itemized deductions associated with income taxed in the top federal bracket.⁷,¹¹ 

In practical terms, affected deductions may generate a federal tax benefit closer to 35% than 37%.⁷,¹¹ 

Why It Matters 

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. 

Strategies Worth Understanding 

• Bunching Contributions. Concentrate multiple years of giving into a single tax year. 
• Donor-Advised Funds. Take the deduction in the funding year while distributing charitable grants over time. 
• Appreciated Securities. Donate highly appreciated assets and potentially avoid capital gains tax while claiming a charitable deduction, subject to applicable limits and substantiation rules.¹² 
• Qualified Charitable Distributions (QCDs). Available beginning at age 70½. QCDs are not deductible, but qualifying distributions are excluded from income and may help manage other income-sensitive tax calculations.¹² 
• Deduction for Non-Itemizers. Beginning in 2026, taxpayers who do not itemize may deduct up to $1,000 of qualifying cash gifts, or $2,000 for married couples filing jointly.⁷ 

Watch Out For 

Charitable carryovers from prior years may receive different treatment than newly created deductions. Review older carryforward balances before implementing a giving strategy.

8. The Window Between Your Last Paycheck and Your First Required Distribution

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: 

• Partial Roth conversions 
• Strategic capital gain realization 
• Tax bracket management 
• Asset-location adjustments 

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. 

What These Eight Have in Common 

They’re Timing Decisions, Not Filing Decisions 

The tax return records decisions already made. Most planning opportunities occur before December 31. 

They Interact 

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. 

Most Become Harder After Year-End 

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. 

Why Gatewood Tax & Accounting? 

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. 

Our Integrated Approach 

• Coordinated Client Care Team: Your Wealth Advisor, CFP® Wealth Planner, Wealth Coordinator, and Tax & Accounting professionals work together to align tax planning with broader financial decisions. 
• Firm-to-Family® Alignment: We focus on planning decisions that support long-term family objectives, charitable goals, and wealth transfer strategies. 
• Proactive Planning: We meet with clients throughout the year to identify opportunities before deadlines pass. 
• Experience with Executive Compensation Planning: Our team regularly works with executive compensation planning issues, including incentive stock options, restricted stock units, supplemental wage withholding, deferred compensation elections, concentrated stock positions, and retirement-date coordination. 

Don’t Let Year-End Arrive Without a Tax Projection 

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. 

Schedule a Tax Strategy Session 

We’ll help you: 

• Determine which of these planning opportunities apply to your situation 
• Compare projected liability with actual withholding 
• Evaluate timing strategies for bonuses, stock compensation, and retirement income 
• Model multiple tax scenarios before year-end decisions are locked in 
• Coordinate tax planning with your broader wealth strategy 

Sources 

1. Internal Revenue Service. Revenue Procedure 2025-32, Tax Inflation Adjustments for Tax Year 2026. 
2. Internal Revenue Service. Publication 15 (Circular E), Employer’s Tax Guide, For Use in 2026, Section 7: Supplemental Wages. 
3. One Big Beautiful Bill Act, Public Law 119-21, §70107, amending IRC §55(d) regarding Alternative Minimum Tax exemption phaseout rules. 
4. Internal Revenue Service. Notice 2025-67, 2026 Amounts Relating to Retirement Plans and IRAs. 
5. IRC §164(b)(6) and §164(b)(7), as amended by the One Big Beautiful Bill Act, Public Law 119-21, regarding the state and local tax deduction limitation. 
6. Missouri Department of Revenue. 2025 Tax Legislative Changes, HB 594 and HB 508, Capital Gains Income Tax Deduction, Section 143.121. 
7. IRC §170(p) and IRC §68, as enacted or amended by the One Big Beautiful Bill Act, Public Law 119-21, regarding charitable contribution and itemized deduction limitations. 
8. Internal Revenue Service. Form 1040-ES (2026), Estimated Tax for Individuals. 
9. Internal Revenue Service. Topic No. 412, Lump-Sum Distributions. 
10. Internal Revenue Service. Nonqualified Deferred Compensation Audit Technique Guide, Section 409A. 
11. Congressional Research Service. The 2/37ths Limitation on Itemized Deductions, IN12686. 
12. Internal Revenue Service. Topic No. 506, Charitable Contributions.

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.