RSU Withholding Shortfall Calculator
Your employer withholds a flat 22% on vesting RSUs regardless of what you actually earn. If your real rate is 32% or 35%, the difference is a bill you meet in April. This works out exactly how large it is.
Tax year 2026 Figures final Last verified 2026-07-26 How we verify
RSU Withholding Shortfall Calculator
Result
| Taxable value of the vest | $170,000 |
|---|---|
| Federal tax withheld | $37,400 |
| Federal tax actually owed on it | $57,000 |
| Federal shortfall | $19,600 |
| State shortfall | $0 |
| Your marginal bracket | 35% |
Estimates for the tax year shown, on the assumptions set out under what this does not model. Educational information, not tax advice.
Line by line
| Vest value added to income | $170,000 |
|---|---|
| Taxable income without the vest | $193,900 |
| Taxable income with the vest | $363,900 |
| Federal tax the vest causes | $57,000 |
| Rate withheld | 22.0% |
| Rate actually owed | 33.5% |
| Federal shortfall | $19,600 |
| State shortfall | $0 |
| Total shortfall | $19,600 |
When restricted stock units vest, the shares become ordinary compensation on the spot — the full market value lands on your W-2 as though your employer had handed you that much cash. Your employer then withholds tax on it, and here is where the trouble starts: vesting shares are supplemental wages, and under Treas. Reg. §31.3402(g)-1-1) the standard method is to withhold a flat 22%, no matter what you earn.
Twenty-two percent is close enough for someone in the 22% or 24% bracket. For a senior engineer on $210,000 whose vest pushes them into the 35% bracket, it is not close at all. The company has withheld correctly, the payroll system has done nothing wrong, and you are still going to be tens of thousands of dollars short when you file.
Nobody tells you this. The withholding looks authoritative, the shares that remain look like yours, and the gap surfaces months later when the return is prepared. The calculator above measures it precisely and tells you how many of the vested shares to sell on the day to close it.
Background reading: Double-trigger RSUs, and the bill that arrives at IPO.
How this is calculated
The shortfall is a subtraction between two figures that are calculated in entirely different ways — which is exactly why they diverge.
-
Value of the vest
shares vesting × price on the vest dateThe vest-date price sets the taxable amount permanently. If the shares fall before you sell, you still owe tax on the higher figure. -
What is withheld
22% of the vest, or 37% on the part above $1,000,000 of supplemental wages for the yearA single flat rate, chosen by regulation rather than by anything about you. The $1,000,000 threshold counts every bonus and earlier vest in the same calendar year. -
What you actually owe on it
tax on (all income) − tax on (all income except the vest)The vest sits on top of your salary, so it is taxed at your highest rates. Computing it as if it were your only income — the mistake most quick estimates make — understates it badly. -
The shortfall
tax owed − tax withheld, federal and state separatelyA negative result is a genuine outcome, not an error: below the 22% bracket the flat rate over-withholds and you are due a refund. -
Shares to sell
ceiling(shortfall ÷ vest price)Rounded up, because being one share short of the bill is the failure case.
A worked example
Priya earns $210,000 in salary and files as a single taxpayer. Two thousand RSUs vest at $85, adding $170,000 of ordinary compensation to her year.
Payroll withholds the statutory flat 22% — $37,400 — and the remaining shares land in her brokerage account. What the withholding does not reflect is that this $170,000 sits on top of a salary that has already used up her lower brackets. The vest is taxed at 24%, then 32%, then 35%.
The result is a five-figure gap on a vest that appeared to have been fully taxed. If Priya lives in a state with income tax the real number is larger still. Selling a small slice of the vested shares on the day would have covered it entirely, at no cost beyond the shares themselves.
| Rsu Income | $170,000.00 |
|---|---|
| Federal Withheld | $37,400.00 |
| Federal Tax On Rsu | $57,000.25 |
| Federal Shortfall | $19,600.25 |
| Total Shortfall | $19,600.25 |
| Shares To Sell To Cover | 231 |
| Taxable Without | $193,900.00 |
| Taxable With | $363,900.00 |
| Marginal Rate | 35.0% |
These figures come from the same code that runs the calculator, checked on every build against a case whose bracket arithmetic was worked by hand.
What this does not model
Every calculator has a boundary. Here is where this one stops — read it before relying on the number.
- Social Security and Medicare are excluded from the shortfall. Employers withhold those correctly on supplemental wages, so they are not a source of surprise — but they do reduce your take-home on the vest, and the 0.9% additional Medicare tax can be under-withheld if you have two employers in the same year.
- State tax is taken from the two rates you enter rather than from a table. There is no verified per-state rule data in this project yet, and a plausible-looking state number nobody has checked is worse than asking you for it.
- The model treats a single vest event. Multiple vests through the year interact through the $1,000,000 supplemental threshold and through your rising marginal rate; enter the combined figures to approximate that, or run each vest with the prior ones recorded as supplemental wages already paid.
- It assumes you hold the shares after vesting. Selling immediately produces a capital gain or loss measured from the vest price, which is usually near zero but is a separate calculation.
- Underpayment penalties are not modelled. A large shortfall can breach the estimated-tax safe harbour and add interest on top of the tax.
- Qualified dividends and long-term capital gains elsewhere in your income are treated as ordinary for the purpose of locating your bracket, which slightly overstates the marginal rate for readers with substantial investment income.
Questions
Why does my company withhold only 22% when I am in a higher bracket?
Because the regulation lets them. The flat-rate method exists so payroll systems do not need to know anything about your other income, your spouse, or your deductions — it is an administrative convenience, and it is applied identically to a junior employee and a vice-president.
Some employers will withhold at a higher rate on request, sometimes called supplemental or additional withholding. Many will not, because the flat method is what their payroll provider supports. It is worth asking, and worth asking early in the year rather than after the vest.
Should I sell shares at vest to cover the gap?
Selling immediately at vest is the lowest-friction way to fund the tax. The shares were just taxed at their market value, so selling straight away produces almost no additional gain or loss — the tax consequence of the sale itself is close to nothing.
The alternative is paying from savings and keeping the shares, which is a decision to increase your concentration in your employer. That may be right if you believe in the company, but recognise it for what it is: your salary, your bonus and now your investments all depend on the same firm.
What happens when my vests pass $1,000,000 in a year?
The excess above $1,000,000 of cumulative supplemental wages must be withheld at 37%, the top ordinary rate. This is mandatory rather than optional — the employer has no discretion once the threshold is crossed.
Counter-intuitively this often means the shortfall shrinks at very high vest values, because 37% withholding is much closer to the true marginal rate than 22% ever was. The gap is at its widest for people somewhere in the middle: well into the 32% or 35% brackets, but nowhere near a million dollars of supplemental income.
Will I be penalised for underpaying, not just taxed?
Possibly. The Internal Revenue Service expects tax to be paid as income is earned, and a large April balance can trigger an underpayment penalty computed as interest on the amount that should have been paid earlier.
Two safe harbours generally protect you: paying at least 90% of the current year’s liability, or at least 100% of last year’s — 110% if your prior-year adjusted gross income exceeded $150,000. Meeting the prior-year harbour is usually the simpler route, because you know the number in advance.
The share price dropped after vesting. Do I owe less?
No, and this is the harshest feature of RSU taxation. The taxable amount is fixed at the vest-date value under IRC §83. A subsequent fall in the share price does not reduce it.
What you get instead is a capital loss measured from the vest price, usable against capital gains and, beyond that, against only $3,000 of ordinary income a year. Employees who held through a sharp decline have been left owing tax at the old price on shares now worth a fraction of it. Selling enough at vest to cover the tax removes this risk entirely.
Does this apply to my ESPP or my stock options too?
Partly. The flat supplemental rate applies to any supplemental wage payment, so the spread on a non-qualified option exercise is withheld the same way and produces the same kind of gap.
Incentive stock options work completely differently — the spread generates no regular income and no withholding at all, but can generate alternative minimum tax. Employee stock purchase plans have their own rules depending on how long you hold. Neither is modelled here.
What figure should I use for my state rates?
Two different numbers are needed and they are rarely the same. The marginal rate is what your state charges on your top dollar of income; the supplemental withholding rate is the flat rate it applies to stock compensation. California, for instance, withholds 10.23% on stock compensation while its top marginal rate reaches 13.3%.
If you live in a state with no income tax, leave both at zero. If your city taxes income as well, add the city rate to the marginal figure.
Is anything I enter here sent anywhere?
No. Every calculation on this page runs inside your own browser, in a static JavaScript file, with no network request at any point. Your salary and grant details never leave the machine you are reading this on, and there is nothing to sign up for.
Sources
Every rate and threshold used above traces to one of these. We cite the statute, the regulation, or the IRS directly — never another commentary site.
- Treas. Reg. §31.3402(g)-1 — withholding on supplemental wages
- IRS Publication 15 (Circular E) — supplemental wage flat rates
- IRC §83 — property transferred in connection with performance of services
- IRS Publication 525 — Taxable and Nontaxable Income
- Rev. Proc. 2025-32 — 2026 brackets and standard deduction
- Treas. Reg. §31.3402(g)-1 — supplemental wage withholding
- Rev. Proc. 2025-32 (2026 inflation adjustments) — §2.15
- Rev. Proc. 2025-32 (2026 inflation adjustments) — §2.01
This page is educational information, not tax, legal or investment advice, and using it creates no professional relationship. Equity compensation interacts with the rest of your return in ways a single calculator cannot see. Before acting on a figure of any size, take it to a qualified tax adviser.