2026 IRS, supplemental wage rate, single

RSU vesting tax in 2026,
why withholding often falls short

RSUs vest as ordinary income at fair market value on the vest date. Federal supplemental withholding is a flat 22% (or 37% over $1M in a year). FICA applies. Your actual marginal bracket may be 24%, 32%, 35%, or 37%, so the 22% withholding under-collects. Below: the math, scenarios, and how to avoid the April surprise.

The two-tax-rate problem

Withholding rate (what your employer takes at vest): 22% federal supplemental (37% above $1M of supplemental wages in a year) plus FICA plus state supplemental.

Actual tax rate (what you owe at filing): Your marginal federal bracket at total income (which includes the RSU as ordinary income). For high earners, this is 24%, 32%, 35%, or 37%.

The gap between withholding and actual tax is paid at filing time as additional federal tax owed. If you do not plan for this, you can owe $5,000-$50,000+ in April depending on the size of the vest and your marginal bracket.

Tax estimate, not tax advice

Scenarios

Withholding shortfall at common salary + RSU combinations

Each row shows base salary plus RSU vest value, the 22% supplemental withholding the employer takes, the actual federal tax owed on the RSU portion (calculated as the difference in total federal tax with and without the RSU), and the gap that must be paid at filing time.

SalaryRSU vest22% withheldActual federal tax on RSUEffective rate on RSUUnderwithheld (you owe)
$100,000$25,000$5,500$5,61122.4%$111
$150,000$50,000$11,000$12,00024.0%$1,000
$200,000$100,000$22,000$31,92931.9%$9,929
$250,000$150,000$33,000$52,00134.7%$19,001
$350,000$200,000$44,000$70,00035.0%$26,000

FICA (Social Security 6.2% up to $184,500 wage base, Medicare 1.45% no cap, plus 0.9% additional above $200K single) is computed separately and is fully withheld at vest. The shortfall above is federal income tax only.

Walk-through

The full RSU tax chain

Step 1: vest event creates ordinary income

On the vest date, the fair market value (FMV) of the shares is added to your W-2 Box 1 as ordinary income. FMV is typically the closing price of the stock on the vest date, multiplied by the number of vesting shares. Example: 1,000 shares vest at $50 closing price = $50,000 of ordinary income added to your W-2. This $50,000 is treated identically to a $50,000 cash bonus for tax purposes: it is wages subject to federal income tax, FICA, state income tax, and most local income taxes.

Step 2: employer withholds at supplemental rates

Federal supplemental withholding is 22% per IRS Publication 15-T (2026). It rises to 37% on supplemental wages above $1 million per year. Most employers default to "sell to cover": the brokerage sells enough shares to cover federal supplemental withholding, state supplemental, and FICA, depositing the remaining shares to your account. Some employers offer "net settlement" (employer keeps shares to cover tax, transfers the rest) or "pay cash" (you pay tax in cash and keep all shares).

State supplemental rates vary: California 10.23% (the highest), New York 11.7% on the supplemental amount, Massachusetts 5%, Pennsylvania 3.07%, no-tax states 0%. The combined federal + state supplemental on a $50K RSU vest in California is 22% + 10.23% = 32.23%, plus FICA. In Texas: just 22% federal supplemental plus FICA.

Step 3: FICA at vest

Social Security 6.2% applies to the RSU value, up to the $184,500 wage base. If your salary alone is below $184,500 and the RSU pushes you over, only the portion below the cap is subject to Social Security. Medicare 1.45% applies to the full RSU value with no cap. If your total wages (salary + RSU) cross $200,000 (single) or $250,000 (MFJ), an additional 0.9% Medicare tax applies to the portion above the threshold. Source: IRS Tax Topic 560.

Step 4: the April reconciliation

At filing time (April), the IRS computes your actual federal tax based on total wages including the RSU. If your marginal bracket is higher than 22% (which it usually is for any RSU recipient with a $100K+ base salary), the actual tax owed exceeds the 22% withheld. The shortfall is paid as additional federal tax due. State follows similar logic, often with a similar gap.

Common shortfall sizes: at 24% marginal bracket, expect to owe an extra 2% of the RSU value federal (about $1,000 on a $50K vest). At 32% bracket, expect to owe an extra 10% (about $5,000 on a $50K vest, $20K on a $200K vest). At 35-37% bracket (very high earners), the shortfall can reach 13-15% of the RSU value.

Step 5: capital gains on holding past vest

Once the shares are yours after vest, any subsequent change in stock price is capital gain or loss. Your cost basis is the FMV at vest (the value already taxed as ordinary income). If you sell within one year of vest, gain or loss is short-term capital (taxed at ordinary income rates, same as the original vest). If you sell after one year past vest, gain or loss is long-term capital (taxed at 0% / 15% / 20% depending on total taxable income).

Most financial planners recommend selling vested RSUs immediately to diversify away from employer-stock concentration risk. The tax math is roughly identical to selling immediately vs holding less than one year. Holding more than one year for the long-term capital gains treatment is a separate decision: it requires you to take on stock-price risk for the year-plus holding period.

How to avoid the April shortfall

Three approaches that work

Option 1: extra withholding via W-4. Form W-4 Step 4(c) lets you specify a flat dollar amount of extra federal income tax withholding per pay period. If you anticipate $10,000 in RSU vesting and a 10-percentage-point shortfall, that is $1,000 extra federal tax. Spread across 26 biweekly paychecks: $40/paycheck extra. Reset to zero after the vest year if RSUs are not annual.

Option 2: quarterly estimated tax via Form 1040-ES. The IRS requires that your withholding plus estimated payments cover at least 90% of current-year tax (or 110% of prior-year tax, whichever is less, to avoid the underpayment penalty). If your RSU vest creates a large under-withholding, send Form 1040-ES for the quarter the vest occurs to top up the IRS account. Quarterly due dates: April 15, June 15, September 15, January 15 of the following year. Source: IRS Form 1040-ES.

Option 3: maximise pre-tax deductions to drop your marginal bracket. A maxed-out 401(k) ($23,500 in 2026) and HSA ($4,300 single / $8,550 family) reduces your federal taxable income by up to $32,050. This can drop your marginal federal bracket and therefore the size of the RSU under-withholding. Doesn't fix the gap entirely (FICA still applies, and 401(k) does not exempt FICA), but it helps.

Sources

Where the 2026 RSU rules come from

Related

Other supplemental-wage and high-earner pages

Bonus tax math

Same 22% supplemental withholding, same marginal-vs-actual gap.

SS wage base

What happens to your paycheck after RSU vesting pushes you past $184,500.

$150K MFJ

Common base salary for RSU recipients. Where the 22% MFJ bracket bites.

$100K single

Where the 22% bracket starts to bite for single. RSU on top likely 24%+.

Bonus tax calculator

Interactive: enter your salary and bonus/RSU amount.

Salary calculator

Try any salary, status, and state to see your base before RSU.

Frequently Asked Questions

How are RSUs taxed when they vest?+
Restricted Stock Units (RSUs) are taxed as ordinary income on the vest date. The taxable amount is the fair market value of the shares on the vest date times the number of vested shares. This income is reported on your W-2 in Box 1 as ordinary wages, and FICA (Social Security 6.2% and Medicare 1.45%) applies. Federal income tax is withheld at the supplemental wage rate of 22% (or 37% for amounts over $1 million in supplemental wages per year). State income tax withholding follows your state's supplemental rate. Source: IRS Publication 525.
Why do I owe more tax in April after RSU vesting?+
Because the 22% supplemental withholding rate is often LOWER than your actual marginal tax rate. If your salary plus vested RSU value puts you in the 24%, 32%, 35%, or 37% bracket, the 22% withholding under-collects. Example: a $150K salary plus $50K RSU vest pushes total income to $200K, which is in the 24% federal bracket. The RSU withholding at 22% is $11,000; the actual federal tax on the RSU portion is closer to $12,000. The $1,000 gap shows up as additional tax owed at filing. The shortfall grows with income.
Can I avoid the under-withholding shortfall?+
Yes, three options. (1) Have your employer withhold extra on your regular paycheck via Form W-4 Step 4(c). (2) Make a quarterly estimated tax payment via IRS Form 1040-ES the quarter the RSUs vest. (3) Increase your 401(k) contribution to reduce taxable income (but FICA and supplemental withholding still apply to the RSU). Most employers cannot adjust the 22% supplemental withholding rate on the RSU itself; the IRS rule is fixed.
What happens to the shares after they vest?+
After vesting, the shares are yours. You can sell immediately or hold. If you sell within one year of vesting, any gain or loss is short-term capital gain (taxed at ordinary income rates). If you sell after holding more than one year past vest, gain or loss is long-term capital gain (taxed at 0%, 15%, or 20% depending on your total taxable income). Your cost basis for capital-gain purposes is the fair market value on the vest date (the same value that was taxed as ordinary income). Most financial planners recommend selling vested RSUs immediately to avoid concentration risk in your employer's stock; the tax math is roughly neutral on a sell-now vs hold-then-sell basis if held less than one year.
What is the 'sell to cover' option?+
Most employers default to 'sell to cover' on RSU vesting: the brokerage automatically sells enough shares at vest to cover the federal supplemental tax (22%), state supplemental tax (varies), and FICA. The remaining shares are deposited to your brokerage account. The 22% federal cover is often insufficient for high earners, hence the April under-withholding. Some employers offer 'net settlement' (employer withholds shares directly from the grant, no open-market sale) or 'pay cash' (you pay tax in cash, keep all shares). Net settlement and sell-to-cover are mathematically equivalent in tax outcome; pay-cash requires liquidity but lets you keep all vested shares.
Do I get Social Security credit for RSU income?+
Yes, up to the annual Social Security wage base ($184,500 in 2026). If your salary plus vested RSU value exceeds $184,500, the portion above the cap does not incur the 6.2% Social Security tax (and does not increase your future Social Security retirement benefit). High earners commonly cross the cap during the year via RSU vesting, after which their paychecks see a 6.2% bump. The Medicare 1.45% tax has no cap, plus an additional 0.9% Medicare Tax above $200,000 (single) or $250,000 (MFJ) that applies to all wages above the threshold including RSU income.
Are RSUs taxed differently than NSOs or ISOs?+
Yes. RSUs are taxed at vest as ordinary income. Non-qualified Stock Options (NSOs) are taxed at exercise as ordinary income on the spread (FMV minus strike price), and at sale as capital gain on the additional spread (sale price minus exercise FMV). Incentive Stock Options (ISOs) are not taxed at exercise for regular tax purposes but the spread can trigger Alternative Minimum Tax (AMT); ISOs are taxed as long-term capital gain on the entire spread (sale price minus strike price) if the qualifying-disposition holding period is met (1 year past exercise plus 2 years past grant). RSUs are simpler and more common in mature public companies. NSOs and ISOs are more common in early-stage private companies. Source: IRS Publication 525 (Taxable and Nontaxable Income).