RSU Tax Planning for Executives

Every time your RSUs vest, your employer withholds federal income tax at a flat 22% supplemental rate (or 37% once your total wages exceed $1 million). If your actual marginal federal rate is 35-37% — and with a $500K+ compensation package it probably is — you're underwithheld by 13-15 percentage points on every vest. Add state income tax (8-13% in CA, NY, or MA) and the April underpayment can easily reach six figures.

RSU Tax Shortfall Estimator

Enter your situation to model your estimated federal and state tax gap from this year's RSU vesting.

Why 22% isn't enough

The IRS mandates that employers withhold federal income tax on supplemental wages — including RSU vesting — at a flat 22% rate for employees earning under $1 million in total wages during the year, and 37% on the excess above $1 million.¹ This is the supplemental withholding rate, not your actual marginal rate.

For executives in the 35% or 37% federal bracket, the gap is structural and large:

• At the 35% bracket ($256,226–$640,600 single / $512,451–$768,700 MFJ): 13-percentage-point gap on every dollar withheld at 22%.
• At the 37% bracket (above $640,600 single / $768,701 MFJ): 15-point gap at 22%, or essentially zero gap if wages already exceeded $1M and employer switched to 37%.

Quarterly estimated tax strategy

The IRS requires you to pay taxes on income as it's earned throughout the year — not just at filing. If you underpay during the year, you'll face an underpayment penalty in addition to the tax bill.² For executives with RSU vesting, this usually means making quarterly estimated tax payments.

Two safe harbors

• 100%/110% of prior-year tax. Pay estimated taxes equal to 100% of your prior-year tax liability (110% if your prior-year AGI exceeded $150,000). This is the simpler approach and protects against penalties even if your current-year liability is higher.
• 90% of current-year tax. Pay at least 90% of what you'll owe for the current year. This requires estimating your full-year liability in advance — harder when RSU vest values fluctuate with the stock price.

Most executives with lumpy RSU income use the 110% of prior-year tax safe harbor as a baseline, then make additional payments when large vests occur mid-year to avoid a large April bill (even if no penalty is owed).

Quarterly payment dates

For 2026, the estimated tax due dates are: April 15, June 16, September 15, and January 15, 2027.² If a large RSU vest occurs in Q1, you have until April 15 to pay the estimated tax on it before penalty accrual begins.

Sell-to-cover vs. hold after vesting

At vest, your employer typically uses one of two methods to cover the withholding obligation:

• Sell-to-cover: The company sells a portion of your vested shares — typically enough to cover the 22% withholding — and remits the cash to the IRS. You receive the remaining shares.
• Same-day-sale: All vested shares are sold immediately. You receive the cash net of taxes.
• Cash payment: Some plans allow you to write a check to cover withholding, so you keep all the vested shares.

None of these methods affects whether you're underwithheld — the withholding percentage is the withholding percentage regardless of the mechanism. But the method determines whether you end up holding concentrated employer stock (sell-to-cover, net-shares) or cash (same-day-sale). That's a separate decision.

State tax: the often-overlooked gap

States don't follow the federal supplemental withholding rules. Many states apply their own supplemental rate (often a flat percentage), which may also be lower than your actual marginal state rate. In California, the top marginal state rate is 13.3% for income above $1 million; the California supplemental withholding rate is 10.23%.³ For high-earners, this adds another gap on top of the federal shortfall.

Multi-state situations add further complexity. If you work in multiple states or relocated during a vesting period, the sourcing rules for RSU income vary by state and your employer's withholding may not match what's actually owed to each state.

RSU planning as part of a full executive comp review

RSU taxation sits at the intersection of several planning decisions:

• NQDC elections: If you defer salary or bonus through your company's NQDC plan, that reduces the non-RSU W-2 income in the estimated tax calculation — which can lower your effective marginal rate on the RSU income. See the NQDC deferral calculator.
• Concentrated stock: After shares vest and taxes are covered, you're often holding concentrated employer stock. The decision to hold or diversify involves cost basis, trading restrictions, and long-term planning. See our concentrated stock guide.
• Change-of-control: If your company is being acquired, the accelerated vesting of RSUs may be a parachute payment subject to 280G excise tax — a separate and larger problem. See the 280G analysis.