clbradfish: employers withhold 22% on RSUs

Restricted stock units are stock pay, but the IRS taxes them like wages the moment they vest. That sounds simple. The catch is that many employers withhold federal income tax on that vesting event at a flat 22%, which is often lower than what higher-earning employees will actually owe. So the surprise shows up later — usually when a worker files in April and realizes the shares covered withholding, not the full bill. ### What actually happens when RSUs vest? When RSUs vest, the value of the shares counts as ordinary compensation income and goes on your W-2, just like cash salary or a bonus. Employers usually cover withholding by holding back some shares or selling some automatically, and that can make the event feel “settled.” But vesting itself is the taxable wage event — not the later sale. ### Why is the withholding rate 22%? Because the IRS generally treats RSU income as supplemental wages. For supplemental wages, employers can use a flat 22% federal withholding rate, and that rate stays 22% in 2026. If an employee’s supplemental wages for the year go above $1 million, the excess gets withheld at 37% instead. Withholding is not the same thing as final tax liability. A worker whose marginal federal rate is 24%, 32%, 35%, or 37% can easily be under-withheld if the employer only used 22% on the RSU vest. Add state tax, Medicare, and possibly the 0.9% Additional Medicare tax once wages cross $200,000, and the gap can get bigger fast. ### Why does this confuse so many tech workers? Because RSUs feel like stock investing, but the first tax hit is really payroll tax logic. People see shares withheld and assume the tax problem is done. Turns out that share withholding is often just the minimum statutory process the employer used. If total income is high, the return reconciles everything later. ### What about selling the shares later? That is a second, separate tax question. Once the RSUs vest, the vest-date value becomes the starting cost basis for those shares. If you sell immediately at roughly the same price, there may be little or no capital gain. If you hold and the stock moves, the later gain or loss is taxed separately from the wage income created at vesting. ### Can employees do anything about it? Sometimes yes, but plan rules matter. Some employers let workers choose different withholding methods or rates through their stock-plan administrator. Others do not. If the plan is rigid, workers often deal with the gap by increasing paycheck withholding, making estimated tax payments, or selling extra shares and setting cash aside. ### So what is the practical takeaway? Treat the 22% as a withholding default, not a verdict on what you owe. If RSUs are a big part of your pay, check your marginal bracket and your state tax picture before vest dates pile up. The whole issue is less about exotic tax law than about a very ordinary mismatch — payroll systems withhold one number, and your return calculates another.