Where the gap comes from
Federal rules let employers withhold a flat 22% on supplemental wages like RSUs and bonuses, up to $1,000,000 a year. It's simple for payroll, but it ignores your actual bracket.
In 2026, a single filer's federal rates are:
- 24% on taxable income from about $105,700
- 32% from about $201,775
- 35% from about $256,225
- 37% from about $640,600
Married couples filing jointly hit these rates at roughly double the income, except the 35% and 37% rates. If your RSU income lands in the 32% to 37% range, every dollar is under-withheld by 10 to 15 cents at the federal level alone.
State withholding can also run short. In California, for example, the supplemental rate for RSUs is a flat 10.23%, while the top state rate is 13.3%.
A quick example
A single filer earns $250,000 in salary and has $285,000 of RSUs settle.
- Withheld on RSUs: 22% × $285,000 = $62,700
- Actual federal tax on that $285,000: mostly at 35%, with some at 32% → roughly $99,000
- Federal gap: about $36,000
That's before state tax and the 0.9% additional Medicare tax, which is also only partly withheld.
Three ways to close the gap
- Increase paycheck withholding. Submit a new W-4 with an extra amount per paycheck. The IRS treats withholding as paid evenly through the year, so this can fix earlier quarters too.
- Make estimated payments. Pay through IRS Direct Pay by the next quarterly deadline. See Estimated taxes and safe harbor.
- Ask about a higher RSU withholding rate. Some companies let you choose a rate above 22% for RSUs. Check your equity portal.
Why the penalty matters
If withholding and estimated payments fall below the safe-harbor amount, the IRS charges an underpayment penalty. It works like interest, computed quarter by quarter. It's avoidable with a little planning.
Find your number
The Withholding Gap calculator shows what's withheld, what you'll owe, and exactly how much to set aside.
General information, not tax advice.
Frequently asked questions
Why did my employer only withhold 22% on my RSUs?
Federal rules permit employers to apply a flat 22% withholding rate on supplemental wages such as RSUs and bonuses. While this method simplifies payroll processing for companies, it often fails to account for your actual individual tax bracket, which may be significantly higher depending on your total income.
How do I know if my RSU tax withholding is not enough?
If your total income pushes you into a federal tax bracket between 32% and 37%, the flat 22% rate results in an under-withholding of 10 to 15 cents for every dollar. You can determine your specific shortfall by using the VestMath withholding gap calculator to compare what was withheld against your actual projected tax liability.
What happens if I don't pay enough tax on my RSU shares?
If your total withholding and estimated payments end up below the required safe-harbor amount, the IRS will charge you an underpayment penalty. This penalty functions like interest and is calculated on a quarter-by-quarter basis, but you can avoid it entirely by planning ahead and covering the gap throughout the tax year.
How can I fix my RSU under-withholding issues?
You can close the gap by submitting a new W-4 form to increase your regular paycheck withholding or by making manual estimated tax payments through the IRS Direct Pay portal. Additionally, check your company's equity portal to see if your employer offers the option to elect a higher withholding rate specifically for your RSU settlements.
Official sources (for the detail-minded)
- Treas. Reg. Section 31.3402(g)-1(a)(7)The 22% flat rate and the 37% rate above $1 million
- IRS Publication 15Employer rules for withholding on supplemental wages
- IRC Section 6654Penalty for underpaying tax during the year
- IRS Publication 505How to fix too-little withholding with estimated payments
Run your own numbers
See your tax, take-home, and what to set aside. Free, and nothing is stored.
Keep reading
How RSUs Are Taxed: Vesting, Withholding and Selling
RSUs are taxed twice: as salary when the shares arrive, and as a capital gain on any growth after that. Here's how each step works.
Too Little Tax Taken Out? How to Spot and Fix Underwithholding
Your employer withholds a flat 22% on most equity income, but your real rate can be far higher. Here's how to spot the gap and close it.
Penalties for Paying Tax Late: Underpayment, Late-Payment and Late-Filing
Three different penalties can apply when tax is paid late. Here's what each costs and how the safe harbors keep you clear.
Buying Pre-IPO Shares on the Private Market: The Tax Basics
The IPO isn't a tax event for you. What matters is your purchase price, your purchase date and when you sell.
Estimates only. Not tax, legal, or investment advice. See our methodology