RSU Tax Calculator — Vesting Value & the Withholding Gap That Surprises You

How to Use the RSU Tax Calculator

1. Enter your number of shares — the total RSU grant size, not just the shares vesting this year.
2. Enter the current stock price. RSUs are taxed as ordinary income at the fair market value on the vesting date — use today's price as your baseline or your expected price at vest.
3. Set your vesting period in years. This calculator assumes equal annual tranches (e.g., a 4-year vest means 25% vests each year). Cliff vesting schedules are common but vary by employer.
4. Set your broker's withholding rate — for most U.S. employees, this is the 22% federal supplemental withholding rate. Some brokers may withhold at a flat 37% if you request it, or if your supplemental income exceeds $1 million.
5. Set your actual marginal tax rate — this is the federal tax bracket that applies to your last dollar of income. For high earners, this is typically 32%, 35%, or 37%. This is where the withholding gap lives: if your bracket is 35% but the broker only withholds 22%, you owe 13% more at tax time.
6. Add your state tax rate if applicable. California taxes RSU income at ordinary rates (up to 13.3%); nine states have no income tax at all.
7. Optionally set expected annual stock growth to see how per-year vesting values change if the stock price appreciates or declines. This is useful for planning — your tax bill when Year 4 shares vest may look very different from Year 1.
8. Review the Withholding Gap — this is the amount you will likely owe at tax time beyond what the broker already withheld. Set this cash aside in a high-yield savings account immediately when shares vest.

How RSUs Are Taxed

Restricted Stock Units (RSUs) are taxed as ordinary income at the moment shares vest — not when you sell them. The IRS treats the fair market value of shares on the vesting date as W-2 wages, subject to federal income tax, Social Security, Medicare (FICA), and state income tax. Your employer's payroll system or broker typically sells a portion of your vested shares to cover the withholding obligation — this is called "sell-to-cover" or "withhold-to-cover."

The critical issue is how much is withheld. The IRS supplemental wage withholding rate — the flat rate applied to bonuses, RSUs, and other supplemental compensation — is 22% for amounts up to $1 million. However, if you are in the 32%, 35%, or 37% tax bracket, the 22% withholding covers less than two-thirds of what you actually owe. The gap — sometimes thousands or tens of thousands of dollars — becomes a tax bill due the following April, often with an underpayment penalty on top.

The withholding gap is the single biggest RSU tax surprise for high earners. A tech employee in San Francisco with $200,000 in RSUs vesting at the 37% federal bracket plus 13.3% California state tax owes 50.3% total — but the broker may only withhold 22% federal + 10.23% California. That 18% gap on $200,000 is $36,000 owed at tax time. Missing this is one of the most common and expensive financial mistakes in equity compensation.

Vesting Schedules and Stock Price Sensitivity

Most RSU grants vest over four years, with either a one-year cliff (no shares until after 12 months, then monthly or quarterly vesting) or equal annual tranches. The tax impact in each year depends on the stock price at vest — not the price when the grant was awarded. If your company's stock doubles between grant and vest, your tax bill doubles with it. If the stock drops 50%, so does your taxable income from those shares (and potentially your tax bill, though you still owe tax on whatever value remains at vest).

This is why the stock price sensitivity section matters. Planning assumes a price; reality delivers something different. Model both upside and downside scenarios to understand your potential tax range and ensure you are not caught short if the stock rises unexpectedly before vesting.

After vesting: capital gains. Once shares vest and are reported as W-2 income, the clock starts on capital gains holding periods. If you hold shares for more than one year after vesting, subsequent price appreciation is taxed at long-term capital gains rates (0%, 15%, or 20%) rather than ordinary income rates. If you sell immediately at vest (common for tax simplicity), you have no capital gain or loss since you sell at the same price used for W-2 reporting.

Frequently Asked Questions

• Why does my broker only withhold 22% when I'm in a higher tax bracket?
  The IRS sets 22% as the mandatory flat withholding rate for supplemental wages up to $1 million per year. Brokers and payroll systems apply this rate automatically unless you take steps to change it. You can increase withholding by submitting a new W-4 to your employer requesting additional withholding, or by making estimated quarterly tax payments to cover the gap. If you do nothing, the difference becomes a balance due the following April — plus potential underpayment penalties if the gap is large enough.
• Can I change the withholding rate on my RSUs?
  In most cases, you cannot directly change the RSU withholding rate — it is determined by IRS rules for supplemental wages. However, you can submit a revised W-4 to your employer asking for additional dollar amounts to be withheld from each regular paycheck to compensate. Alternatively, you can make IRS estimated quarterly payments (Form 1040-ES) to cover the expected gap. Talk to your payroll department and a CPA to find the best approach for your situation.
• What is the difference between RSUs and stock options?
  RSUs have value as long as the stock has any price above zero — you receive shares of stock, not the right to buy them. Stock options (ISOs and NQSOs) give you the right to purchase shares at a fixed "strike price" set at grant; they have value only if the current stock price exceeds the strike price. RSUs generate ordinary income at vest; NQSOs generate ordinary income at exercise on the spread (current price minus strike); ISOs have more complex AMT treatment. For a full evaluation of how RSUs factor into your total offer, use the Job Offer Total Compensation Calculator.
• Do I owe FICA (Social Security and Medicare) on RSUs?
  Yes. RSUs are subject to Social Security tax (6.2% on income up to the annual wage base, $168,600 in 2024) and Medicare tax (1.45%, plus the 0.9% Additional Medicare Tax on income above $200,000 single / $250,000 married). The FICA portion is withheld by your employer at vest and is separate from — and in addition to — the federal income tax withholding this calculator models. This calculator focuses on the federal income tax + state income tax withholding gap, which is typically the largest planning gap for high earners.
• Should I sell RSUs immediately when they vest?
  The "sell immediately" strategy is tax-simple: you sell at the same price used for W-2 reporting, so there is no capital gain or loss to track. The risk of holding is concentration risk — if your employer's stock drops, you lose both the tax payment you already made (based on the higher vest-date price) and the value of the shares. Many financial advisors recommend selling immediately and diversifying, especially if company stock already represents a significant portion of your net worth. This is a personal financial decision; consult a financial advisor for guidance specific to your situation.
• How does this connect to other career salary tools?
  Use the Job Offer Total Compensation Calculator to evaluate the full value of an offer including RSU grants, then use this RSU Tax Calculator to model the actual after-tax value of those RSUs. If you're negotiating the RSU component of your offer, the Salary Negotiation Counteroffer Calculator helps you model how countering on base salary compares to countering on RSU grant size over a career.