RSU & Equity Compensation Tax Calculator

Under IRS rules, employers are required to withhold federal income tax on supplemental wages (which includes RSU vesting income) at a flat 22% rate for amounts up to $1 million. For supplemental wages exceeding $1 million in a calendar year, the mandatory withholding rate jumps to 37%.

Why 22% specifically? The IRS designed this as a simplified flat-rate approach for supplemental income. It roughly corresponds to the 22% marginal tax bracket, which covers single filers earning $44,726 to $95,375 (2024). The problem is that most tech workers receiving significant RSU compensation earn well above this range, pushing them into the 24%, 32%, 35%, or even 37% bracket.

What this means for you:

• If you're in the 22% bracket or below — The default withholding is roughly correct. You might even get a small refund.
• If you're in the 24% bracket — You'll owe a modest additional amount at tax time.
• If you're in the 32%+ bracket — You could owe tens of thousands of dollars more than what was withheld. This is where the surprise hits hardest.

Some employers allow you to elect a higher withholding rate through your stock plan administrator (like E*Trade, Fidelity, or Schwab). If your company offers this option, increasing your withholding to match your actual bracket can help you avoid a large tax bill in April.

The under-withholding gap is the difference between the total tax you actually owe on your RSU income and the amount your employer withheld at vesting. For most high-earning tech employees, the employer's 22% flat withholding is significantly less than their true marginal tax rate.

How to calculate the gap:

• Step 1: Determine your RSU vest value (shares vesting × stock price at vest date)
• Step 2: Calculate your total tax obligation — federal income tax at your marginal bracket + state income tax + Social Security (6.2% up to the wage base) + Medicare (1.45% + 0.9% additional above $200K)
• Step 3: Subtract what your employer withheld (typically 22% × vest value for federal, plus state and FICA withholding)
• Step 4: The remaining amount is your gap

A real-world example: Say 500 shares vest at $200/share = $100,000 in RSU income. Your employer withholds 22% federal ($22,000) + 6.2% FICA ($6,200) + 1.45% Medicare ($1,450) + state taxes. But if you're in the 35% federal bracket, you actually owe $35,000 in federal tax alone — that's a $13,000 federal gap, plus any state tax difference.

How to cover the gap: You can make estimated quarterly tax payments (IRS Form 1040-ES) or increase withholding on your regular paycheck for the rest of the year. The IRS expects you to pay at least 90% of your current year's tax liability (or 100%/110% of last year's) to avoid underpayment penalties.

Yes. RSU vesting income is subject to FICA taxes, just like regular wages. There are two components:

Social Security tax (6.2%):

• Applies to the first $168,600 of combined wages and RSU income in 2024 (this is the "wage base")
• If your regular salary already exceeds this threshold, your RSU income is not subject to additional Social Security tax
• If your salary is below the wage base, RSU income fills up the remaining room until you hit the cap

Medicare tax (1.45% + 0.9% surtax):

• The base 1.45% Medicare tax applies to all income with no cap
• An additional 0.9% Medicare surtax applies to earnings above $200,000 (single) or $250,000 (married filing jointly)
• This surtax was introduced by the Affordable Care Act and catches many RSU recipients because their salary + RSU income frequently exceeds the threshold

Important nuance: Your employer typically withholds both Social Security and Medicare taxes from your RSU vest, often by selling shares to cover. However, the Additional Medicare Tax (0.9%) is only withheld once your cumulative wages for the year exceed $200,000 — which means early-year vests might not have this withheld, creating another source of under-withholding.

When you hold RSU shares after vesting, your cost basis for capital gains purposes is set at the fair market value on the vesting date. Any price movement after that date creates a capital gain or loss, separate from the ordinary income tax you already owe on the vest.

The two-layer tax structure:

• Layer 1 (at vesting): You owe ordinary income tax on the full vest value. This happens regardless of whether you sell or hold. There is no way to defer or avoid this tax.
• Layer 2 (at sale, if holding): If the stock price has changed since vesting, you realize a capital gain or loss. The tax rate depends on your holding period.

Holding period determines the capital gains rate:

• Short-term (held ≤ 1 year after vesting) — Gains taxed at your ordinary income tax rate (up to 37%). No tax benefit from holding.
• Long-term (held > 1 year after vesting) — Gains taxed at preferential long-term capital gains rates: 0%, 15%, or 20% depending on income. This is significantly lower than ordinary income rates.

The risk of holding: While long-term capital gains rates are attractive, holding RSU shares means you have concentrated stock risk. If the stock drops below your vest price, you still owe the full ordinary income tax on the original vest value — you can only use the capital loss to offset up to $3,000 of ordinary income per year (with carryforward). Many financial advisors recommend selling at vest and diversifying.

The IRS expects you to pay taxes throughout the year, not just at filing time. If you owe more than $1,000 after subtracting withholding and credits, you may face an underpayment penalty unless you meet one of the safe harbor rules.

Safe harbor options to avoid penalties:

• 90% rule: Pay at least 90% of your current year's total tax liability through withholding and estimated payments
• 100% / 110% prior year rule: Pay at least 100% of your prior year's total tax. If your AGI exceeded $150,000, the threshold is 110% of the prior year's tax.

Three strategies to stay current:

• Increase W-4 withholding: After a big RSU vest, update your W-4 to have more tax withheld from each remaining paycheck. This is the simplest approach.
• Make estimated quarterly payments: Use IRS Form 1040-ES. Quarterly deadlines are April 15, June 15, September 15, and January 15 of the following year.
• Elect higher withholding on RSUs: If your stock plan administrator allows it, set your supplemental withholding rate higher than the default 22%.

Timing matters: The IRS calculates underpayment penalties on a quarterly basis. If your RSU vest happens in Q1, you should make an estimated payment by April 15 to avoid a penalty for that quarter. Waiting until Q4 to "true up" can still result in penalties for the earlier quarters.

If you live in a state with no income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming — your RSU income is exempt from state-level taxation. This can represent a significant savings, especially on large vests.

The math difference is substantial: Consider a $200,000 RSU vest. In California (13.3% top rate), you'd owe approximately $26,600 in state tax alone. In Texas or Washington, that state tax bill is zero. Over a four-year vesting schedule on a significant RSU package, the cumulative state tax difference can easily reach six figures.

Important caveats:

• Multi-state rules: If you moved during the year or work remotely for a company in a different state, the tax situation gets complicated. Some states tax RSU income based on where you worked during the vesting period, not just where you live when the shares vest.
• New Hampshire exception: While NH has no income tax on wages, it historically taxed interest and dividend income. This tax was fully phased out as of 2025.
• Federal taxes still apply: Moving to a no-income-tax state saves you state taxes but does not reduce your federal tax bill or FICA obligations.

This is a major reason tech workers relocate from California and New York to states like Texas, Florida, and Washington. The RSU tax savings alone can fund the move many times over.

These are the three most common forms of equity compensation at public and pre-IPO companies, and each has a fundamentally different tax treatment:

RSUs (Restricted Stock Units):

• You receive shares (or the cash value) when vesting conditions are met, usually time-based
• Taxed as ordinary income on the full fair market value at vesting
• No purchase price — RSUs are "free" shares, so the entire value is taxable
• Most common at large public tech companies (Google, Meta, Amazon, Microsoft, etc.)

Stock Options (ISOs and NSOs):

• Give you the right to buy shares at a predetermined strike price
• ISOs (Incentive Stock Options) — No ordinary income tax at exercise (but may trigger AMT). If you hold shares 1+ year after exercise and 2+ years after grant, gains are taxed at long-term capital gains rates.
• NSOs (Non-Qualified Stock Options) — The spread (market price minus strike price) is taxed as ordinary income at exercise, similar to RSUs.
• More common at startups and pre-IPO companies

ESPPs (Employee Stock Purchase Plans):

• Let you buy company stock at a discount (typically 15% off the lower of the price at the start or end of the offering period)
• The discount portion is taxed as ordinary income when you sell
• If you hold for 1+ year after purchase and 2+ years after the offering period start, you get preferential tax treatment (qualifying disposition)

Key takeaway: RSUs are the simplest to understand but have no tax deferral opportunities — the full value is taxable at vesting. Stock options offer potential tax advantages (especially ISOs) but carry exercise risk. ESPPs are generally the best deal available because you get a guaranteed discount on top of any stock appreciation.

The IRS has a special withholding rule for supplemental wages (including RSU vesting income) that exceed $1 million in a calendar year. Below that threshold, employers use the flat 22% federal withholding rate. Above it, the mandatory withholding rate jumps to 37% — the top marginal tax bracket.

How the $1M threshold works:

• The $1 million threshold is based on cumulative supplemental wages paid by your employer during the calendar year, not just RSU income
• Supplemental wages include bonuses, RSU vesting income, commissions, overtime pay, and other non-regular compensation
• Once your year-to-date supplemental wages cross $1 million, the employer must withhold 37% on the excess

Example: If you received a $200,000 bonus in March and then 2,000 RSUs vest in September at $500/share ($1,000,000 vest value), your cumulative supplemental wages reach $1.2 million. The first $800,000 of the RSU vest is withheld at 22%, and the remaining $200,000 is withheld at 37%.

Does 37% withholding mean you owe 37%? Not necessarily. The 37% withholding rate is just the mandatory withholding — your actual tax rate depends on your total income and filing status. If your taxable income puts you in the 35% bracket, the 37% withholding means you'll get a partial refund. If you're solidly in the 37% bracket, the withholding is approximately correct for the federal portion.

This is one of the most painful aspects of RSU taxation. When your shares vest, you owe ordinary income tax on the full fair market value at the vest date. If you hold the shares and the stock subsequently drops, you have a capital loss — but you cannot simply "undo" the ordinary income tax you already owe.

Here's how the math works against you:

• 100 shares vest at $200/share = $20,000 ordinary income tax event (at your marginal rate)
• Stock drops to $150/share and you sell = $5,000 capital loss ($150 - $200 cost basis × 100 shares)
• You can only deduct $3,000 of capital losses against ordinary income per year (the rest carries forward)
• Net result: You paid tax on $20,000 of income but can only offset $3,000 this year

This asymmetry is brutal in a down market. In 2022, many tech employees saw their RSUs vest at high prices, owed substantial taxes, then watched the stock price collapse. They owed taxes on gains they never actually realized, with limited ability to offset them.

Strategies to mitigate this risk:

• Sell at vest — Eliminates the risk of owing tax on gains that disappear. This is the simplest protection.
• Tax-loss harvesting — If you do hold and the stock drops, sell to realize the loss and use it to offset other capital gains (from investments, etc.)
• Carry forward — Unused capital losses carry forward indefinitely, offsetting future gains dollar for dollar