RSU Tax Withholding: The Flat 22% and the Bill It Leaves Behind

When RSUs vest and shares are delivered, the market value of those shares that day is compensation, identical in character to salary, and it lands in Box 1 of your W-2. But payroll systems do not withhold on it the way they withhold on salary. RSU income is classified as supplemental wages, the same bucket as bonuses and commissions, and supplemental wages get their own withholding rules.

The rule nearly every employer uses: withhold a flat 22% of the supplemental payment for federal income tax, until your cumulative supplemental wages for the calendar year pass $1 million, at which point a mandatory 37% applies to the excess. The 22% is not tailored to you. It does not know your salary, your spouse's income, or your bracket. It is the same rate for an analyst with a $15,000 vest and a director with a $400,000 vest.

Mechanically, the withholding is usually funded by share withholding (the company keeps back enough shares to cover the tax deposit and delivers the net) or sell-to-cover (the broker sells enough shares at market and remits cash). Either way, the amount withheld is calibrated to the flat rate, so the method does not change the shortfall, only the mechanics.

Map that against the 2026 brackets and the problem is visible from orbit. A single filer crosses into the 32% bracket at $201,775 of taxable income and 35% at $256,225. RSU income stacks on top of salary, so the vest itself is what pushes you into those brackets, where it is then taxed 10 to 13 points above what was withheld. The withholding system is not broken; it was simply never designed to be your final answer, and the W-2 wage base it uses makes the shortfall systematic rather than random.

RSU vests are FICA wages too, and the payroll-tax layer behaves differently from the income-tax layer:

Two quiet gotchas live in this stack. First, the Additional Medicare Tax thresholds do not match: employers withhold above $200,000 of wages per employer, but married couples owe it above $250,000 of combined wages, so two spouses each earning $150,000 plus RSUs can owe Additional Medicare Tax that nobody withheld. Second, state supplemental rates are their own patchwork; a California employee's default state withholding on RSUs, for example, may not match a high earner's actual top state rate, adding a state layer to the same federal story.

If your vests come from a still-private company waiting on an IPO, the timing is different but the gap is bigger: years of vesting can settle in one day. That scenario has its own page: double-trigger RSUs.

Your numbers will differ with filing status, state, and vest sizes, which is exactly what our free RSU tax calculator is for: enter salary and vest value, and it estimates the income, the flat withholding, your real marginal tax, and the shortfall in about thirty seconds.

1. Aim at a safe harbor, not at perfection.

You do not need to nail your exact liability mid-year; you need to avoid the underpayment penalty. The safe harbors: total withholding plus timely estimates covering 90% of this year's tax, or 100% of last year's tax (110% if last year's AGI topped $150,000). In a rising-income year, the prior-year number is fixed and known, which makes 110% of it the cleanest target: hit it and the penalty is off the table regardless of how large April's balance turns out to be.

2. Add extra withholding to regular paychecks.

Form W-4, line 4c, lets you add a flat extra amount to every paycheck's withholding. Withholding has a superpower estimates lack: it is treated as paid evenly through the year no matter when it happens, so even a December W-4 change can cure earlier-quarter underpayment. Divide your estimated gap by remaining paychecks, submit the W-4, done. Some stock plan systems also allow electing a higher flat rate on the vests themselves; if yours does, that is the most direct fix.

3. Make quarterly estimated payments.

If W-4 changes are impractical, pay the gap directly at the quarterly deadlines (April 15, June 15, September 15, and January 15 of the following year) via IRS Direct Pay. Estimates are credited when paid, so match them to the quarters your vests actually land in if the amounts are lumpy.

4. Sell a slice of each vest for taxes, deliberately.

If you would not buy your company's stock with cash today, selling vested shares at delivery is rational anyway, and earmarking a tax slice (the gap between your marginal rate and 22%) turns each vest into its own funded tax event. There is minimal capital-gains cost to an immediate sale, since the basis equals the vest price you were just taxed on.

1. Treating sell-to-cover as "taxes handled."

Sell-to-cover funds the withholding, and the withholding is the flat 22%. The phrase sounds comprehensive and covers roughly two-thirds of a high earner's actual liability. The number of people who discover this via a five-figure balance due, rather than a paragraph like this one, is the reason this page exists.

2. Copying the 1099-B basis at filing time.

After a vest-and-sell, brokers commonly report a cost basis of zero or of some partial figure on Form 1099-B, because the reporting rules do not let them include your W-2 income in basis. File it unadjusted and you pay capital gains tax on wages you already paid tax on. The fix is a basis adjustment on Form 8949; the vest confirmation from your equity portal has the correct vest-date value. The same trap catches ESPP sellers every spring.

3. Holding every share and compounding the problem.

Holding vested shares means the tax gap must be paid from other cash while your net worth concentrates in one ticker. If the stock then falls, you owe full wage tax on the vest value with only a $3,000-per-year capital loss valve on the decline. Decide your hold-versus-sell policy once, in writing, and let it run.

4. Forgetting the state layer, especially after a move.

States source RSU income earned across a vesting period worked in multiple states, and default state withholding rarely matches that allocation. Move from a high-tax state mid-grant and both states may have a claim; move to one and your withholding may be pointed at the wrong state entirely. Flag any move on your vesting timeline for your preparer.

Use high-vest years for deductions that care about your bracket. Charitable contributions, and especially donor-advised fund bunching, are worth the most in the year your marginal rate peaks. A $30,000 contribution deducted at 35% beats the same contribution at 24% by $3,300 of federal tax.

Watch the thresholds a vest can trip. RSU income raises modified AGI for the 3.8% net investment income tax on your portfolio income ($200,000 single, $250,000 joint), and can push you across Medicare IRMAA cliffs that raise premiums two years later if you are near that horizon.

Coordinate RSU years with other equity events. A heavy vest year is generally the wrong year to also exercise nonqualified options (more supplemental income at the same too-low withholding), but it can be exactly the right year for an ISO exercise, because towering regular tax absorbs the AMT adjustment; the math lives in our ISO AMT guide. If you hold multiple equity types and are weighing them, start with RSUs vs stock options.

If vests recur every quarter and the numbers are large, this stops being a once-a-year cleanup and becomes an ongoing planning problem, which is what our stock compensation planning service exists for.