RSUs and the withholding gap

Restricted stock units feel simple. They vest, shares appear, some are sold to cover taxes, and the rest are yours. The simplicity hides a gap that catches high earners every year.

How RSUs are taxed

When RSUs vest, their full market value is ordinary wage income, reported on your W-2 like salary. If 1,000 units vest at $100 a share, you have earned $100,000 of compensation that day, whether or not you sell.

Where the gap comes from

Employers usually withhold on vesting income as a supplemental wage, at a flat 22 percent federal rate. Above $1 million of supplemental wages in a year, withholding rises to 37 percent.

The flat rate is a withholding convenience, not your tax rate. In 2026 the 37 percent bracket begins at $640,600 for single filers and $768,700 for joint filers, and the 32 and 35 percent brackets start well below that. Add state tax and the 0.9 percent Additional Medicare Tax on higher wages, and each vest can leave 10 to 15 cents of every dollar unpaid.

On a $300,000 year of vesting, that can mean $30,000 or more due at filing.

The second trap: basis

The shares you keep have a cost basis equal to their value at vesting, because you already paid tax on that amount. Brokerage forms often report that basis as zero. File the sale as reported and you pay tax on the same income twice. The fix is a basis adjustment on Form 8949.

Closing the gap

1. Project the year. Estimate total vesting, salary and bonus against your full bracket, not the withholding rate.
2. Adjust withholding. Increase withholding on your regular paycheck through a revised W-4, or elect higher withholding on vests if your plan allows it.
3. Pay estimates. Quarterly estimated payments close what withholding does not.
4. Mind the safe harbor. Above $150,000 of adjusted gross income, you generally avoid an underpayment penalty by paying 110 percent of last year's tax through withholding and estimates.

A vest schedule is known months in advance. The tax on it should be too.

This article is educational and is not tax advice for any specific situation.