RSU Tax Calculator

By default, your employer withholds federal taxes on RSU vests at the 22% supplemental rate (or 37% if your annual supplemental wages exceed $1M). If your real marginal rate is higher — and for most tech employees it is — you owe the difference in April. This calculator estimates that gap.

Why this happens

At vest, the IRS treats RSUs as ordinary income. Your employer is required to withhold federal taxes, and they can either:

1. Use the 22% flat supplemental rate (default for most public companies)
2. Use the aggregate method (combine with your regular paycheck and withhold at your W-4 rate)

Method 1 is simpler for payroll and what almost every company uses. Method 2 would produce correct withholding but requires payroll systems to compute each paycheck separately.

So for a tech employee in the 32–37% federal bracket plus 1.45% Medicare plus 0.9% Additional Medicare plus 5–10% state, the real marginal rate on the marginal dollar of RSU vest is 40–50%. The 22% withholding covers less than half.

What to do about it

• Pay quarterly estimated taxes to avoid the underpayment penalty. The penalty isn't huge (~7% annualized) but compounds.
• Use the "sell-to-cover" mechanism wisely. Most brokers let you elect to sell additional shares at vest beyond the default 22%. Selling to cover your full marginal rate eliminates the April surprise.
• Set aside the gap in a savings account. 4–5% yield, liquid, and earmarked for April.
• Coordinate with a tax planner if your RSU income is $300K+, especially if you live in a high-tax state. A $30K planning mistake costs more than the planner.