RSU Withholding vs. Actual Tax in 2026: The Filing-Time Gap
Every spring, thousands of tech workers open their tax returns to an unpleasant surprise: they owe thousands more, and the culprit is usually RSUs. Your employer withheld 22% on every vest — so why isn't that enough? Because withholding is not your tax bill. Here is how the gap works in 2026 and how to close it before April.
Why employers withhold a flat 22%
The IRS treats RSU vests as supplemental wages — the same category as bonuses and commissions. Employers are allowed (and most choose) to withhold on supplemental wages at a flat 22% federal rate, rather than looking up your actual tax bracket. (On supplemental wages above $1 million in a calendar year, the required rate jumps to 37%.)
This is administratively simple, but it is only a down payment. Your actual tax on that vest income is determined by your marginal tax bracket — the rate on your last dollar of taxable income — which for 2026 runs from 10% all the way to 37%:
| 2026 single filer taxable income | Marginal rate | Gap vs. 22% withholding |
|---|---|---|
| Up to $105,700 | 22% or less | None — withholding covers it |
| $105,701 – $201,775 | 24% | 2 percentage points short |
| $201,776 – $256,225 | 32% | 10 points short |
| $256,226 – $640,600 | 35% | 13 points short |
| Over $640,600 | 37% | 15 points short |
The pattern is clear: the higher your income, the bigger the shortfall. A mid-level engineer in the 24% bracket underpays slightly; a senior engineer deep in the 35% bracket underpays badly.
A worked example: the $600 surprise
What was withheld on the vest: 22% federal = $6,600
What she actually owes on it: Her salary alone gives her $128,900 of taxable income ($145,000 − $16,100 standard deduction), which sits in the 24% bracket. The $30,000 vest stacks on top — entirely inside the 24% bracket.
Actual federal tax on the vest: 24% × $30,000 = $7,200
Federal shortfall: $7,200 − $6,600 = $600 owed.
Her California withholding (10.23%, or $3,069) slightly exceeds her actual ~9.3% state liability (~$2,790), refunding about $280 — leaving her roughly $320 out of pocket at filing time.
$320 is manageable. But scale the vest to $120,000 — a normal year at many big tech companies — and the federal shortfall alone becomes $2,400. In the 32% bracket, a $100,000 vest year creates a $10,000 federal gap. This is the number that ruins Aprils.
Three ways to close the gap during the year
- Increase W-2 withholding. File a new Form W-4 with your employer and add an "extra withholding" dollar amount per paycheck. This is the simplest fix if most of your income is salary plus predictable vests.
- Make quarterly estimated payments. The IRS expects tax to be paid as income arrives. To avoid an underpayment penalty, you generally need to prepay at least 90% of this year's tax or 100% of last year's tax (110% if your adjusted gross income exceeded $150,000). Divide the shortfall by four and pay each quarter.
- Sell a few extra shares at vest. If your plan defaults to sell-to-cover at 22%, you can sell a few more shares yourself and set the cash aside (or send it straight to estimated payments). Our RSU calculator shows exactly how many shares that takes.
New to how RSU taxation works overall? Start with our guide to how RSUs are taxed in 2026.
Don't forget the state gap
The federal 22% gets all the attention, but states play the same game with their own flat supplemental rates — and the mismatch can cut either way. California withholds a flat 10.23% on supplemental wages, which is actually above the 9.3% marginal rate many tech workers face, producing a small state refund that softens the federal blow (as in Maya's example above). Other states go the opposite direction: New York has no flat supplemental rate at all, so RSU withholding follows regular payroll tables and frequently comes up short of the actual liability. The result is that your total April surprise is the sum of the federal gap and the state gap — and the state piece is the one most people never model. TaxMyVest's calculator covers all 50 states plus DC with state-specific supplemental withholding notes, so both gaps show up in one number.
Withholding gap FAQ
Can I ask my employer to withhold more than 22% on RSUs?
Most employers and brokerages let you elect a higher withholding rate on vests — commonly up to 37%. Check your equity portal's tax election settings around each vest date.
Does the 22% rate apply to my bonus too?
Yes. Bonuses, commissions, severance, and RSU vests are all supplemental wages subject to the same 22% flat withholding rule.
What is the underpayment penalty?
If you prepay too little during the year (below the 90%/100%-of-last-year safe harbors), the IRS charges interest on the underpaid amount. It is not catastrophic, but it is avoidable with quarterly estimates.
I'm in the 12% bracket. Does this affect me?
In reverse: if your marginal rate is below 22%, the flat withholding overpays and you get the excess back as a refund. The gap only hurts above the 22% bracket.
See your personal withholding gap.
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