RSU Withholding Gap 2026: Why You'll Owe More at Tax Time

Aanya's first big RSU vest of the year hit her brokerage account on April 21, 2026. Her grant of 600 restricted stock units at her employer's $128 closing price came out to $76,800 in taxable wages. By the next morning, the shares were sold-to-cover, the after-tax balance was sitting in her Fidelity account, and she filed the email confirmation in a folder called "Done."

The shares would not be done with her.

Aanya was a senior engineer making $215,000 in base salary. Add the vest and her ordinary income for the year was running close to $360,000. Her marginal federal bracket was 32%. Her employer had withheld federal tax on the vest at 22%. The 10-percentage-point gap on a $76,800 vest is $7,680, and that is just the federal piece, before California, before NIIT, before the Medicare surtax on wages above $200,000.

This is what most people miss about restricted stock units. The withholding looks automatic. It feels automatic. It is not actually correct.

Why the 22% Rate Is Built Into the Vest

RSUs are taxed as ordinary wage income on the day they vest, under Internal Revenue Code §83(a). The full fair-market value of the shares lands in Box 1 of your W-2 the same way a cash bonus would. Because the IRS classifies vests as "supplemental wages" under IRS Publication 15 (Circular E), employers default to a flat federal withholding rate of 22% on cumulative annual supplemental wages up to $1 million. Past $1 million in a single calendar year, the rate jumps to 37% on the excess.

The 22% number does not come from your bracket. It comes from a 2017 administrative rule that picked a single rate easy enough for payroll systems to apply consistently across the country. If you happen to sit in the 22% federal bracket, the math is roughly right.

In 2026, the 22% single-filer bracket runs from $50,400 to $105,700 of taxable income. The 24% bracket runs from $105,700 to $201,050. The 32% bracket runs from $201,050 to $256,225, the 35% bracket from $256,225 to $640,600, and the 37% rate kicks in above $640,600. The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, per the IRS's October 2025 inflation-adjustment release for tax year 2026.

If your taxable income sits anywhere above $105,700 as a single filer, every dollar of RSU compensation is under-withheld by at least 2 percentage points. For tech employees in the $200K-plus range, the gap widens to 10 percentage points. For senior staff cracking the $256K mark, 13 points.

This isn't a hypothetical edge case. According to a 2025 survey by the National Association of Stock Plan Professionals, 72% of 325 publicly held employers included RSUs in their long-term incentive programs, up from 37% a decade earlier. Among large-cap companies, RSU prevalence sits closer to 90%. The withholding gap is now a default feature of how Americans in tech, biotech, finance, and broader corporate life get paid.

What the Gap Looks Like in Real Dollars

Take Aanya's full-year picture, run through 2026 brackets, and you can see the bill coming.

Base salary: $215,000. RSU vests across the year totaling $145,000. No 401(k) deferral on the vest side (most plans exclude RSU income from elective deferrals). Standard deduction: $16,100. Taxable income: $343,900.

Federal income tax owed, calculated through the 2026 brackets:

• 10% on the first $12,400 = $1,240
• 12% on $12,400 to $50,400 = $4,560
• 22% on $50,400 to $105,700 = $12,166
• 24% on $105,700 to $201,050 = $22,884
• 32% on $201,050 to $256,225 = $17,656
• 35% on $256,225 to $343,900 = $30,686

Total federal income tax: about $89,192.

Now her withholding. Her employer's payroll system, applying the standard 2026 federal withholding tables to her $215,000 base salary on a default W-4 (single filer, no adjustments), pulled approximately $42,000 in federal income tax over the year. On the $145,000 in RSU vests, the employer withheld the supplemental rate of 22%, or $31,900.

Total federal income tax withheld: about $73,900. Total owed: about $89,192. Shortfall: roughly $15,300, before California, before the 3.8% Net Investment Income Tax on capital gains, before the 0.9% additional Medicare tax on wages over $200,000.

That number lands in April as a tax bill. If the shortfall pushes Aanya past safe-harbor (which for high earners requires paying in either 90% of current-year liability or 110% of prior-year liability, whichever is lower), the IRS adds an underpayment penalty on top. The Q2 2026 underpayment rate is 6%, per IRS Revenue Ruling 2026-5 published in Internal Revenue Bulletin 2026-8 on February 17, 2026.

The Second Trap: Your 1099-B Probably Has the Wrong Cost Basis

There is a separate landmine on the selling side that costs RSU filers another four-figure mistake every spring.

When you sell shares from an RSU vest, your broker sends you a Form 1099-B and files it with the IRS. The "cost basis" column is supposed to record what you paid for the shares so you only owe capital-gains tax on the actual gain. Since a 2014 Treasury rule went into effect, brokers have only been required to report the "discount" basis on equity-compensation sales. For RSUs, that reported basis is often $0. Brokers are not required to add back the fair-market value you already recognized as ordinary income on the vest date.

The result: if you blindly copy your 1099-B into your return, you treat the entire sale as a capital gain. You pay tax twice on the same dollars. Once when the RSU vested and the value flowed through W-2 wages, and a second time when you "sell" at the same price with a $0 reported basis.

The fix is on Form 8949. In Column (e), you replace the reported $0 basis with the fair-market value on the vest date (your actual basis, which is what was already taxed as wages). In Column (f) you enter Code B, and in Column (g) the offsetting adjustment. The IRS gets a clean reconciliation. You stop paying tax twice.

The supplemental statement your broker emails alongside the 1099-B (Schwab, Fidelity, Morgan Stanley, and E*TRADE all produce one) shows the "adjusted basis" they didn't report to the IRS. That is the number you put on Form 8949. If you sold shares in 2025 and your tax software pulled the 1099-B in cleanly without flagging this, there is a real chance you overpaid. You have three years from the filing deadline to amend on Form 1040-X.

Closing the Gap Before the IRS Does It for You

If the math above sounds familiar, there are three honest paths to fixing the withholding problem before next April.

Increase payroll withholding for the rest of the year. Submit a new W-4 to your employer with an "extra withholding" amount on Line 4(c) calibrated to make up the shortfall over the remaining paychecks. The advantage: payroll withholding is treated by the IRS as paid evenly across the year for penalty purposes, regardless of when it actually happened. A Q4 W-4 bump can retroactively cure an earlier-year safe-harbor problem. This is the cleanest fix for W-2 employees and the move I most often see senior tax pros recommend first.

Make a Q3 or Q4 estimated tax payment. The Q3 federal deadline for 2026 income is September 15, 2026. The Q4 deadline is January 15, 2027. Pay through IRS Direct Pay at irs.gov/payments, mark it as a Form 1040-ES voucher for the right tax year, and you're done. Estimated payments don't carry the "treated as paid evenly across the year" benefit that withholding does, so a single late-year catch-up rarely undoes underpayment penalties from earlier quarters, but it caps the damage.

Elect a higher supplemental rate at the source. Some employers let you bump RSU federal withholding above the default 22% inside the equity-plan portal. Common options are 28%, 32%, or 35%. Check your equity-plan tax election page before your next vest cycle. If the option exists, this is the lowest-friction fix because it eliminates the gap on every future vest automatically.

The other piece, which goes beyond withholding, is whether you should be selling your vested shares immediately or holding them. The answer for most people is: sell on vest, diversify the proceeds. RSUs are functionally a cash bonus paid in the riskiest asset you can hold (your single employer's stock, on top of your single employer being your only paycheck). A pre-set 10b5-1 plan, filed during an open trading window, automates same-day sell-on-vest and avoids both the temptation to time the market and the insider-trading minefield. Most large public employers offer the framework for one inside the equity portal.

The Bottom Line

Four actions, in order, this week:

1. Pull your most recent paystub or year-to-date earnings statement from your employer's payroll portal. Add federal income tax withheld so far. Compare it to a back-of-the-envelope estimate of what you actually owe (use the 2026 brackets above, subtract the standard deduction). The gap is your number.

2. If the gap is above $1,000 and you have at least one paycheck left in 2026, file a new W-4 with an "extra withholding" amount on Line 4(c) sized to close the gap by year-end. This is the cleanest fix for W-2 employees and protects safe harbor even if applied late in the year.

3. If your gap is large and your paychecks are running out, make a Q4 estimated payment at irs.gov/payments by January 15, 2027. For shortfalls over $5,000, ask your CPA whether Form 2210 Schedule AI (the annualized income installment method) makes more sense than the safe-harbor calculation.

4. Pull your 2025 Form 8949 and check whether your RSU sales used the broker-reported cost basis or the adjusted basis from the supplemental statement. If your return used $0 or the unadjusted broker number on any RSU sale, you almost certainly overpaid. File Form 1040-X to amend. The three-year window is open through April 2029 for 2025 returns.

RSUs were designed to feel like invisible compensation. The shares land in your account, the deposit looks settled, and the tax piece looks automatic. None of that is actually true once you cross the 22% federal bracket. The good news is that every part of the gap has a fix, and most of them are paperwork-grade rather than expensive.