RSUs are income at vest — and the 22% trap
When restricted stock units vest, the IRS treats the full value as ordinary income — exactly like a cash bonus. Your employer withholds tax on that income, but here’s the catch: federal withholding on this kind of supplemental wage defaults to a flat 22%, regardless of your actual bracket. If you’re a high earner whose marginal rate is 32%, 35%, or 37%, that 22% isn’t enough — and the IRS expects the rest by filing day.
The withholding gap
gap = vest value × (marginal rate − 22%)
On a $40,000 vest, withholding at 22% holds back $8,800. But at a 32% marginal rate the true federal tax is $12,800 — leaving a$4,000 surprise you’ll owe at filing unless you set it aside.
What makes this calculator different
- It surfaces the withholding gap. Most RSU calculators stop at net value. We compare the 22% withheld against your real marginal rate and show the dollars you may still owe.
- Sell-to-cover, in shares. See exactly how many shares the employer sells to fund withholding and how many you keep.
- Full withholding breakdown. Federal, state, and FICA (Social Security + Medicare) — and your effective withholding rate.
- Net value and net shares. The two numbers that actually land in your account after a vest.
Frequently asked questions
How are RSUs taxed?+
Restricted stock units are taxed as ordinary income when they vest, not when granted. On the vest date the full value — number of shares vesting times the share price that day — is added to your wages and taxed like salary. That value also becomes the cost basis of the shares, so any further gain or loss is measured against the vest-date price when you eventually sell.
Why do I owe more tax than was withheld on my RSUs?+
Employers withhold federal tax on RSUs at the flat IRS supplemental rate of 22%. If your actual marginal tax rate is higher — 32%, 35%, or 37%, which is common for the people who receive large grants — that 22% under-withholds and you owe the difference at filing. This is the single most common RSU surprise. The calculator estimates the gap between the 22% withheld and your real marginal rate so you can set the money aside in advance.
What is sell-to-cover?+
Sell-to-cover means your employer automatically sells just enough of the vesting shares to pay the required tax withholding, and you keep the rest. It is the default at most companies because it requires no cash from you. The alternative is paying the withholding in cash and keeping all the shares — useful if you want to hold the full position, but it ties up money. Either way the tax owed is the same; only how you fund it differs.
Should I sell my RSUs at vest or hold them?+
Because RSUs are taxed as income at vest, selling immediately incurs little or no additional tax — the shares’ cost basis equals the vest price. Holding starts the capital-gains clock: gains become long-term (lower rate) after a year. The trade-off is concentration risk. Holding a large position in your employer’s stock is a bet on a single company that also pays your salary. Many advisors suggest selling at vest and diversifying, but the right answer depends on your goals.
Do RSUs get taxed by my state too?+
Yes. Vested RSU income is generally taxed by the state where you earned it, and many employers withhold state tax automatically at a flat rate. Rates vary widely — some states have no income tax, others exceed 10%. If you moved during the vesting period, allocation rules can split the income between states. Enter your state rate to fold state withholding into the net estimate.
Disclaimer: This calculator is a simplified estimate for educational purposes only — not tax or financial advice. It applies a flat supplemental withholding rate and ignores the Social Security wage-base cap and the higher 37% supplemental rate on supplemental wages over $1,000,000. Actual tax depends on your full return; consult a tax professional.