The complete guide to RSU taxes

Why 22% withholding doesn't cover the bill

When RSUs vest, the full market value of the shares is added to your W-2 as wages — the IRS treats vesting like a paycheck, not an investment event.[1] Your employer withholds a flat 22% for federal tax on that income (37% above $1 million of supplemental wages),[2] and sells just enough of your shares to cover it. That 22% is a legal default, not your tax rate.

Your real rate is your marginal bracket — the bracket the vest stacks into on top of your salary. For a single filer in 2026 with a $180,000 salary, the $16,100 standard deduction leaves $163,900 of ordinary taxable income — already deep in the 32% bracket. A $36,000 vest stacks on top at 32–35%:

True federal tax on the vest: $10,400
Withheld by your broker:    $7,920 (22%)
The gap you still owe:    $2,480 per vest

That's the core of the RSU surprise: not a mistake, just arithmetic. The 22% convention was designed for bonuses, and it only covers you if your actual marginal rate is 22% or less — which, for most people receiving RSUs, it isn't.

The data appendix — all 50 salary-and-vest combinations computed for 2026: the RSU withholding gap index →

The four-vest problem

Vests usually arrive quarterly. Each gap feels small — but four $36,000 vests is $144,000 of wage income, enough to push a $180,000 salary from the 24% bracket into 32–35%. Recomputed on the full year, the true tax on those vests is about $44,600 against $31,680 withheld. The gap: $12,920.

That's not a rounding error. It's a used car, due in April — and it repeats every year you don't fix it. Fall short of the §6654 safe harbors and a non-deductible interest charge gets added to the balance.[3]

• At $200,000 salary with five $20,000 vests: true tax $10,200 more than the $22,000 withheld — $2,040 per vest.
• At $300,000, the rate climbs but the mechanics don't change — 35% true versus 22% withheld, roughly $1,300 per $10,000 vest. The salary barely matters; the vest is already in the top bracket it will see. (The full mechanics: estimated taxes & safe harbors.)

How to fix it before December

1. Raise your W-4 withholding. Divide your year's gap by your remaining paychecks and put that on W-4 line 4(c). At the $180,000 example, closing a $12,920 gap over 12 remaining paychecks is $1,077 per check. W-4 withholding counts as paid evenly all year no matter when you raise it — it's the cleanest safe-harbor lever, and it works even in November.
2. Make quarterly estimated payments. Form 1040-ES, due April 15, June 15, September 15, January 15.[4] More precise when vests are irregular — but the deadlines matter: a missed quarter's payment is still penalized for the quarters you skipped, even if you catch up later.

One thing to pay attention to: the safe harbors are forgiving — pay 100% of last year's tax (110% above $150,000 AGI) or 90% of this year's and the penalty goes away entirely. Salary withholding plus the 22% on vests is usually enough to clear the prior-year harbor in a stable year. A big vest year can break that pattern — and you only find out at filing.

Should you sell shares to cover the gap?

You don't need a payroll fix at all if you handle it at the source: sell enough of each vest to cover its true tax and set the cash aside.

• What's taxed at vest: the full value, as wages — sell or hold, the tax is identical. Selling doesn't create the tax; the vest already did.
• How much to sell: roughly a third of each vest at a $180,000 salary (32–35% true rate minus the 22% already withheld) — about $12,920 across four vests.
• Where to park it: somewhere boring — a high-yield savings account or a Treasury money-market fund. Not invested. This money has a date with the IRS.
• The honest trade-off: you give up the upside on the shares you sell. You also never get surprised in April. People who do this call it boring; people who don't call April expensive.

Selling a third of each vest is also the simplest answer to the concentration problem — most RSU guides treat holding as the default and never mention it. It isn't the default; it's a decision, and the tax math is neutral on it. If your vest is bigger or your salary is higher, the fraction to sell shifts a little — run your own numbers.

FAQ

Do I owe tax when my RSUs vest, or when I sell?

Both, and they are different taxes. At vest, the full value of the shares is wages — it lands on your W-2 that year, taxed at ordinary income rates, whether you sell a single share or not. When you later sell, only the gain above the vest-date value is a capital gain. Holding under a year: short-term, ordinary rates. Holding over a year: long-term, 0%, 15%, or 20%. The vest is the event most people forget about; the sale is the one they remember.

Is 22% withholding on RSUs enough?

Only if 22% is actually your marginal bracket — which for most tech employees it isn't. If your salary already puts you in the 24% bracket or higher, every vest is under-withheld from the first dollar. At a $180,000 salary, the true federal tax on a $36,000 vest is $10,400; your broker sent $7,920. Multiply by the number of vests you get each year.

Do I have to pay estimated taxes on RSU income?

Usually not directly — you have a better lever. Estimated payments (Form 1040-ES) are the default fix for untaxed income,[4] but RSU income comes through payroll, so you can instead raise your W-4 withholding, which the IRS treats as paid evenly all year no matter when you increase it. That makes the W-4 the more forgiving fix, especially late in the year. If you'd rather keep your paycheck untouched, quarterly estimated payments work too — due April 15, June 15, September 15, and January 15.

What if I've never done anything about this?

Then you are likely in the majority, and this is the year to fix it — mid-year is not too late. If you raised W-4 withholding today, every remaining paycheck would withhold a bit more, and the IRS counts it as if you'd been paying all year. Wait past December and the options narrow to a check in April plus, if you missed the safe harbors, a small penalty. Run your numbers now — the earlier you act, the smaller each remaining adjustment.

Should I just sell all my RSUs when they vest?

For the tax problem alone, you only need to sell about a third of each vest — the shares covering the 13-point gap between the 22% withheld and your real rate. Whether to sell the rest is a risk question, not a tax one. Holding means your salary, your career, and your savings all ride the same company. Most financial planners would call that too many eggs in one basket; the tax code doesn't punish you for diversifying on vest day, because the vest was already taxed either way.

The one-paragraph version

Vests are wages; 22% is a convention, not your rate; your real rate is whatever bracket the vest stacks into. Compute it once — salary, this year's vests, ten seconds — then close the gap with your W-4 or quarterly payments before December.[3][4] Do nothing and April does it for you, plus interest.

This guide is general information, not tax advice for your situation. If your income is well above the examples here, or you have ISOs or ESPP alongside RSUs, the interplay is worth an hour with a CPA.