Why your RSUs keep creating a tax bill in April

Restricted stock units are taxed as ordinary income when they vest. Most employers withhold federal tax at the 22% supplemental rate, rising to 37% only on supplemental wages above $1 million in a year.

If your marginal rate is 32%, 35%, or 37%, that 22% leaves a gap, and every vest widens it.

A quick example

Say $120,000 of RSUs vests during the year and your marginal federal rate is 35%:

	Amount
Withheld at 22%	$26,400
Actually owed at 35%	$42,000
Shortfall	$15,600

That's before New Jersey tax, and before any underpayment penalty.

Three ways to close the gap

1. Raise W-4 withholding on your regular paychecks for the rest of the year.
2. Make quarterly estimated payments after large vests.
3. Sell-to-cover at a higher rate, if your plan allows elective withholding above 22%.

We run a vest-by-vest projection for clients each spring so the April number isn't a surprise.

General information from a fictional firm on a concept site, not tax advice.