RSU tax withholding is where a lot of tech employees get their first unpleasant surprise from equity compensation. Your company withholds taxes the moment your shares vest, but the number on your pay stub and the number you actually owe in April are calculated two different ways.
For anyone with a base salary above the low six figures, that gap can show up as a tax bill they didn’t budget for.
How RSU tax withholding works at vesting
When your RSUs vest, the value of the shares on that date counts as ordinary income, the same as a paycheck. Your employer has to withhold taxes on it like any other wage, which usually means selling off a portion of the newly vested shares (a “sell-to-cover”) to cover the withholding, then depositing the rest into your account.
This happens at every vesting date for as long as you hold unvested grants, including the specific rules that apply if you leave the company before everything vests.
The supplemental withholding rate
The withholding your employer applies isn’t based on your actual tax bracket. It’s a flat federal rate the IRS sets for supplemental wages, which covers RSU vesting alongside bonuses and commissions.
For 2026, that rate is 22% on supplemental income up to $1 million in a calendar year, and 37% on anything above that. Your employer doesn’t know your total household income, your other withholding elections, or what bracket you’re actually in. It just applies the flat rate to whatever’s vesting that day.
Why the withheld amount might fall short of what you actually owe
The flat 22% rate is a reasonable estimate if your total taxable income keeps you in the 22% federal bracket. For most tech employees with a meaningful base salary, it doesn’t. If your combined income (salary plus vested RSU value) pushes you into the 24%, 32%, or a higher bracket, the 22% withheld on your RSUs covers less than what that income is actually taxed at.
The shortfall doesn’t show up until you file: you end up owing the difference between what was withheld and your real marginal rate, sometimes stacked across several vesting events in a single year.
Take a software engineer with a $180,000 base salary whose vested RSUs add another $170,000 of income in the same year. Their combined income reaches the 35% federal bracket, but the RSU portion was only withheld at the flat 22% supplemental rate.
Because that $170,000 stacks on top of the salary, it climbs through 24%, 32%, and 35% as the total rises to $350,000. Worked out across those brackets, the real tax on that $170,000 comes to about $55,500, versus roughly $37,400 withheld at 22%, leaving them with a gap of about $18,100 that was never set aside.
| Base salary | $180,000 |
| RSU value at vesting | $170,000 |
| Combined income for the year | $350,000 |
| Withheld on the RSU portion | 22% |
| Top marginal rate reached | 35% |
| Additional tax due, not withheld | ~$18,100 |
This isn’t a guarantee you’ll owe more. If your total income keeps you at or below the 22% bracket, the withholding can land close to correct, or even ahead. It’s a mismatch that grows with how far above that bracket your total income actually sits.
State withholding considerations
States that tax income generally apply their own supplemental withholding rate, and it doesn’t necessarily line up with the federal one any better than the federal rate matches your bracket.
California, for example, withholds a flat 10.23% on supplemental wages, including RSU vests and bonuses, regardless of your actual state bracket. If you’re in a state with no income tax, this part doesn’t apply to you. If you’re in a high-tax state, it’s worth checking that state’s specific supplemental rate rather than assuming it mirrors the federal one.
Managing a large, growing RSU position
None of this changes what you actually owe. It just changes when you find out about it, which is why it’s worth tracking the gap as your vests accumulate rather than getting surprised every April.
As vested shares pile up, they can turn into a real concentrated position in one company’s stock without the shift feeling dramatic one vest at a time. Diversifying that position through an exchange fund lets you move out of a single-stock concentration without selling and triggering another taxable event on top of the one you already owe. Glidepath is one such fund, with a $100,000 minimum and no management fee.