Why RSU Withholding Leaves You With a Tax Bill

Flat withholding, progressive tax

RSUs are taxed as ordinary income at vest, on the fair market value of the shares that day. Payroll systems withhold that income at the flat supplemental wage rate rather than at your marginal bracket. When your marginal rate is higher than the supplemental rate, withholding is short by the difference on every dollar of vested value.

Where the gap widens

• Large single vests that push income into a higher bracket
• State income tax withheld at a flat supplemental rate too
• Additional Medicare tax that begins above a wage threshold
• Share-withholding rounding, which nearly always rounds in the employer's favour

Closing the gap

- Increase withholding on regular wages with a revised Form W-4 - Make an estimated payment in the quarter the shares vest - Check the safe-harbor threshold, which caps the underpayment penalty even if the final bill is large

How to use the calculator

Enter the vest value, your marginal rates, and the withholding actually applied. The estimator reports the shortfall and the plain-English reading of what to set aside before the next quarterly deadline.