The tax bill nobody warns you about before a vest

Vesting RSUs are treated as supplemental wages, and employers commonly withhold federal tax on supplemental wages at a flat 22% rate for amounts up to $1 million in a year. That rate is not tied to your actual bracket. If your household income puts you in the 32% or 37% bracket, the flat rate under-withholds and the difference is owed when you file.

It is a directional estimate, not a tax projection. It uses 2026 federal brackets, assumes the standard deduction, and assumes your employer withholds the flat 22% federal rate. The headline shortfall is federal only. State tax is a flat-rate estimate, and both it and the Additional Medicare tax are shown separately. It does not account for your other deductions, credits, other withholding, capital gains, or anything else in your return. The point is to show whether a gap exists and roughly how large it is, early enough for you to do something about it.

There are three practical routes: increase your W-4 withholding for the rest of the year, make a quarterly estimated payment to cover the shortfall, or sell shares at vest to fund the tax. Which one fits depends on your cash flow and whether you were going to sell anyway. Underpayment penalties can also apply, which is another reason to work this out before filing season.

It is worth considering, because RSUs are taxed as ordinary income at vest regardless of whether you sell. Holding is therefore a separate investment decision from the compensation itself. A useful test: would you buy that stock with a cash bonus of the same size? If the answer is no, holding deserves a second look.

No, options work differently and this tool does not cover them. Non-qualified options create ordinary income on the spread at exercise, withheld like wages. Incentive stock options can trigger alternative minimum tax in the year you exercise, even if you sell nothing. Both need their own analysis, and the equity compensation planning page covers how that works.

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