What happens when your RSUs vest
On your vest date, shares turn from a promise into stock you own. The fair market value (FMV) of those shares that day is compensation, taxed exactly like salary, and it's included in Box 1 of your W-2.
Your employer has to withhold tax at vest. There are three common ways that happens:
Sell-to-cover is the most common. Enough of the newly vested shares are sold to pay all the required withholding (federal, state and FICA), and you keep the rest. If total withholding is 35% of a 200-share vest, about 70 shares are sold.
Same-day sale sells all vested shares and pays you the cash after withholding.
Cash payment means you receive all the shares and pay the withholding from your own cash. Some plans offer this; it's less common.
The vest-day FMV also becomes your cost basis. When you sell later, only the change from that value is a capital gain or loss: long-term if you held the shares more than 12 months after vesting, short-term otherwise.
When 22% isn't enough
For federal income tax, employers usually use the IRS supplemental wage rate of 22% on RSU income up to $1 million in a calendar year; above $1 million, 37% is mandatory. The 22% is a withholding rate, not your tax rate. What you owe depends on your bracket once the RSU income is added to your salary. This mismatch is sometimes called RSU underwithholding: the flat 22% only covers your real tax bill if the RSU income keeps you inside the 22% federal bracket.
For a single filer in 2026, with the $16,100 standard deduction, the federal brackets that matter for RSUs start at roughly these salaries:
| Federal rate on the RSU income | Taxable income (single, 2026) | Approx. salary with standard deduction |
|---|---|---|
| 22% | $50,400 – $105,700 | $66,500 – $121,800 |
| 24% | $105,700 – $201,775 | $121,800 – $217,875 |
| 32% | $201,775 – $256,225 | $217,875 – $272,325 |
| 35% | $256,225 – $640,600 | $272,325 – $656,700 |
| 37% | above $640,600 | above $656,700 |
Remember that the RSU income itself pushes you up the table. A $200,000 salary is in the 24% bracket, but a $50,000 vest on top of it lands partly in the 32% bracket.
A worked example: $180,000 salary, $25,000 vest, California
| Tax | Withheld at vest | Actually owed | Difference |
|---|---|---|---|
| Federal income tax | $5,500 (22%) | $6,000 (24%) | −$500 |
| California income tax | $2,557.50 (10.23%) | $2,325 (9.3%) | +$232.50 |
| Social Security (6.2%) | $279 | $279 | $0 |
| Medicare (1.45%) | $362.50 | $362.50 | $0 |
| Additional Medicare (0.9%) | $45 | $45 | $0 |
| California SDI (1.3%) | $325 | $325 | $0 |
| Total | $9,069 | $9,336.50 | −$267.50 |
At this salary the gap is small: the federal shortfall of $500 is partly offset because California's required 10.23% withholding is higher than the 9.3% California actually charges at this income. Social Security applies only to the last $4,500 of wages below the $184,500 wage base. Additional Medicare applies to the $5,000 of wages above $200,000.
Same vest at a $250,000 salary: federal tax on the RSU income is $8,080, because it falls in the 32% and 35% brackets. With the same 22% withheld, the federal shortfall is −$2,580, and the total gap about −$2,350. The difference between a small and a meaningful gap is almost entirely your federal bracket.
How state withholding works
State income tax is withheld at vest too, but the rules differ by state:
- Flat supplemental rates. California requires 10.23% on stock compensation; New York's supplemental rate is 11.70%. At typical tech salaries these rates are often higher than what the state actually charges, so the state side is usually over-withheld.
- Flat-tax states such as Illinois (4.95%), Massachusetts (5%) or Pennsylvania (3.07%) usually withhold about what you owe.
- States without a flat supplemental rate use their regular wage tables, which may or may not match your final bill.
- No-income-tax states such as Texas and Washington withhold nothing because nothing is owed.
Check the state line on your vest confirmation or pay stub, and enter that rate in the calculator's "State withheld" field for the most accurate result.
What to do about the gap: three options
1. Elect a higher withholding rate at vest. Some equity plans let you choose a higher federal rate on RSUs, commonly up to 37%. That covers the gap automatically. Check your equity portal or ask your stock plan administrator.
2. Make an estimated tax payment. Pay the shortfall to the IRS (and your state, if it's under-withheld) by the deadline for the quarter of the vest. For 2026: April 15, June 15, September 15 and January 15, 2027. Federal payments are free through IRS Direct Pay.
3. Increase your W-4 withholding. Adding extra withholding to your regular paychecks works too. Paycheck withholding counts as paid evenly through the year, which helps avoid underpayment penalties even when the extra money is withheld late in the year.
Whichever you choose, the simplest habit is to set aside the calculated shortfall on every vest day, for example by selling a few extra shares.
The FICA piece
RSU income is subject to Social Security and Medicare like salary, and your employer withholds both at vest.
- Social Security: 6.2% up to the 2026 wage base of $184,500 of total wages from that employer. If your salary is already above that, RSUs vesting late in the year owe none; a vest early in the year may still owe Social Security until the cap is reached.
- Medicare: 1.45% on all wages, no cap.
- Additional Medicare: 0.9% on wages above $200,000. Employers withhold it above $200,000 regardless of filing status, but married couples owe it only above $250,000 combined, so it can be over- or under-withheld for couples.
Because FICA is withheld the same way it's owed, it rarely creates a gap on its own. On a $50,000 vest for someone already earning over $200,000, Medicare and Additional Medicare total $1,175 (2.35%). Your W-2 Boxes 3 and 5 (Social Security and Medicare wages) include RSU income, so they look larger than your salary. That's expected.