Why the 22% RSU withholding falls short

Where the 22% comes from

When RSUs vest, the fair-market value of the shares is wages, added to your W-2 like a bonus. The IRS lets employers withhold on these “supplemental wages” at an optional flat rate: 22%, regardless of your actual bracket, up to $1 million of supplemental wages in a year[1]. Every major brokerage and plan administrator uses the flat rate, because it is simple and it is the default. (This guide covers federal income tax only. Social Security and Medicare also come out of a vest, from the same paycheck, separately.)

The flat rate is convenient for payroll. It was never designed to match your real liability. Your real liability is set by your marginal bracket, the rung your taxable income reaches after your salary is counted. The 22% flat rate matches the true tax only inside the 22% bracket, which for a single filer in 2026 spans taxable income of $50,400 to $105,700. Below it, 22% over-withholds. Above it, 22% under-withholds, and the shortfall grows with every rung.

The breakpoint: where 22% stops working

For a single filer taking the 2026 standard deduction ($16,100), the 22% bracket tops out at $105,700 of taxable income, which corresponds to $121,800 of salary. That is the breakpoint. Below it, a vest's first dollars are still inside the 22% bracket, so the flat withholding roughly covers them. Above it, every dollar of the vest lands in the 24% bracket or higher, and the gap opens.

On a $10,000 vest, single filer, 2026 standard deduction:

• $100,000 salary: withheld $2,200, true tax $2,200, gap $0.
• $120,000 salary: gap $164 (the top of the vest has started spilling into the 24% bracket).
• $121,800 and up: gap $200, the full 2-cent difference between 24% and 22% on every vested dollar.

From there it only widens. Taxable income past $201,775 puts vest dollars in the 32% bracket (10 cents short per dollar withheld), past $256,225 in the 35% bracket (13 cents short), and past $640,600 in the 37% bracket (15 cents short). The Gap Index study computes all 50 salary-and-vest combinations; its headline — that the 22% rule visibly breaks around $150,000 of salary — is the same mechanism seen from higher up.

How big the gap gets

The gap scales with salary, because salary decides where the vest starts stacking. Single filer, 2026 standard deduction, gap in dollars after the 22% withholding:

Read the $180,000 row as the typical senior-engineer case: a $100,000 vest is withheld $22,000, but the vest stacks from the 24% bracket through 32% and into 35% ($37,875 at 24%, $54,450 at 32%, $7,675 at 35%), so the true tax is $29,200, an effective 29.2% on those shares. The gap is $7,200, 7.2% of the vest's value.

At a $300,000 salary the gap is a flat 13% of any vest, because the whole vest lands in the 35% bracket: $1,300 per $10,000 vested.

Every vest stacks higher than the last

Vests are usually quarterly, and each one looks handled because 22% came out. But each vest stacks on top of the ones before it, so the same-size vest costs more later in the year. Four $36,000 vests at a $180,000 salary, single:

The Q1 vest stacks on salary alone, which ends in the 24% bracket: $8,640 of true tax, a $720 gap. The Q4 vest stacks on salary plus $108,000 of earlier vests, and lands entirely in the 35% bracket: $12,600 of true tax, a $4,680 gap. Identical shares, identical withholding, and the Q4 gap is 6.5 times the Q1 gap. This is why “last quarter was fine” tells you nothing about this quarter.

Your tax position moves every quarter whether you look or not. The live monitor dashboard shows it moving (labeled sample; account connections are planned, not live).

Married filing jointly changes the sign

Bracket position, not the vest, decides the gap. Filing jointly roughly doubles every bracket width, so the same income sits much lower in the schedule:

• $100,000 household salary, $10,000 vest: the vest is over-withheld. True tax $1,200 against $2,200 withheld, about $1,000 back at filing. The 22% rule over-collects here.
• $180,000 household salary, $100,000 vest: gap $728, versus $7,200 for the single filer with identical numbers.
• The joint break starts around $243,600 of household salary (taxable income past the $211,400 top of the 22% bracket). Above that, joint filers start leaking 2 cents per vested dollar too, and the index shows it staying modest into the low $300,000s.

Over $1 million, the rule changes (and still falls short)

Once supplemental wages pass $1 million in a year, withholding on the excess is a mandatory 37%, not 22%[1]. That helps, but the first million is still withheld at 22%, and the first million does the damage.

A $1,200,000 vest year with a $200,000 salary, single: withholding is $220,000 on the first million plus $74,000 on the excess, $294,000 total. The true income-tax slice on the vest is $431,266, a 35.9% blended rate, because the vest fills every bracket from 24% up before living in 37%. Gap: $137,266, even after the corrective rate kicked in.

What an unclosed gap costs

The gap is due by the April filing deadline. Whether a penalty joins it depends on the §6654 safe harbors: pay 100% of last year's total tax (110% if last year's AGI was over $150,000) or 90% of this year's, through withholding or estimates, and the penalty is zero regardless of the April balance. Balances under $1,000 are penalty-free outright. Miss every harbor and the §6654 interest charge on a $7,200 shortfall spread across the year is about $336 at the current 7% rate; a $10,000 shortfall costs about $470. The underpayment-penalty check → /tools/underpayment-penalty computes your exposure, and the safe-harbor guide walks the math.

Closing the gap

Three levers, in the order most people should take them:

• W-4 line 4(c), extra per-paycheck withholding. For the $7,200 gap: $600 a month starting in January, $1,200 a month starting in July, or about $277 per biweekly paycheck across the year. Withholding is treated as paid evenly all year, which makes this the best safe-harbor lever[2].
• Quarterly estimated payments, due April 15, June 15, September 15, and January 15. Precise for irregular vests, but credited only to their own quarter[3].
• Set aside from each vest. At a $180,000 salary, an average of $3,230 per $36,000 vest beyond what sell-to-cover took; the Q4 vest alone needs $4,680.

The full mechanics of each lever are in The RSU tax gap, in full →.

FAQ

The one-paragraph version

The 22% is a convention calibrated to the 22% bracket, and your vests do not live there. Every vested dollar above that bracket is under-withheld, each successive vest stacks higher than the last, and the difference is due in April: $7,200 on a single $100,000 vest at a $180,000 salary, $12,920 across a four-vest year, 13 cents on the dollar at a $300,000 salary. Compute your number with the RSU withholding-gap calculator →, then close it with your W-4 or estimated payments before the year closes.