RSU withholding is not enough for many tech employees because employers withhold a flat 22% federal rate on vests, while their real rate on that income is often 35% or 37%. Many people assume the shares sold to cover tax settle the bill, but sell-to-cover only withholds 22% on the first $1 million of supplemental wages in a calendar year, and the gap is due by April 15.
Do nothing and the gap shows up on your return as a balance due, sometimes five figures. If your withholding and payments also fall below the IRS safe-harbor targets, an underpayment penalty gets added, plus interest on anything left unpaid after April 15.
Edward Jones Investments wrote this article from what people ask at an opening conversation, often while holding a tax bill they never expected. It follows one hypothetical year with real arithmetic, a checklist and the dates that matter.
By Elena Rodriguez, CFA — Portfolio Manager | Reviewed by Aisha Bello, CFPElena manages fixed-income and equity ladders for clients approaching retirement, focusing on sequence-of-returns risk.
The 22% on a vest is a withholding rate, not a tax rate. If you're in the 35% bracket, budget 13 points of every vest dollar as a bill you'll pay later.
Dana Whitfield, CPA and Tax Director at Edward Jones Investments
I'd rather a client hold the shortfall in cash than count on selling in March. If a blackout is open, a sale can't be made when the bill arrives.
Marcus Ellery, CFP® and Lead Advisor at Edward Jones Investments
What does the IRS supplemental wage rule actually say?
The IRS lets employers withhold federal income tax on supplemental wages, such as RSU vests and bonuses, at a flat 22% on the first $1 million in a calendar year, and requires 37% withholding on the excess. That is a withholding rate, not your tax rate. The vest is taxed as ordinary wages at your marginal rate on your return.
So the paraphrase 'RSUs are taxed at 22%' is wrong, and it's the reason the April bill surprises people. If your marginal bracket is 35% or 37%, every vest dollar leaves a 13 to 15 point gap. Check the current IRS brackets for your filing status instead of guessing.
Pay stubs can mislead you late in the year. Social Security tax stops once wages reach the $184,500 taxable wage base for 2026, so later vests show less FICA withheld, while Medicare tax continues on all wages. A bigger net check in November doesn't mean the vest is covered.
One more rule decides which fix works in December. Withholding from wages and from IRA or pension distributions counts as paid evenly through the year, no matter when it actually happened. Estimated payments count only on the date you send them.
Run the rate-gap math on Carol's vests and inherited IRA
Carol, 48, runs engineering as a vice president at a public cloud company. She is a single parent of 2 teenagers and files head of household. She has a heavier year than usual (hypothetical, round numbers). Her RSU vests total $300,000, and her employer withholds 22%, or $66,000. She also takes $100,000 from an IRA inherited from her mother, and the custodian withholds the default 10% on that nonperiodic distribution, $10,000. People forget that second source because it arrives on Form 1099-R in late January, not on a pay stub.
Assume, for illustration, that both land at a 35% rate and that her salary withholding of $85,000 matches the tax on her salary. Total withheld is $85,000 + $66,000 + $10,000 = $161,000. Her actual tax is $225,000, so she is $64,000 short.
You can repeat the math in four steps. First, add up vest income for the year. Second, multiply it by your marginal rate minus 22%. Third, do the same for any non-wage income, using the rate actually withheld. Fourth, add the gaps.
For Carol, 13 points × $300,000 is $39,000, and 25 points × $100,000 is $25,000. Together that's $64,000. Your own marginal rate may not be 35%, so check the current IRS brackets for your filing status.
Now the safe-harbor test. Carol's AGI last year was over $150,000, so she needs payments of at least 110% of last year's $180,000 total tax, which is $198,000. She has $161,000 withheld, so she sends $37,000 by January 15. That avoids the penalty, but $27,000 is still due April 15. The calculator on this site runs the same steps with your numbers.
Edward Jones Investments sets aside the full $64,000 in cash from the scheduled trading-plan sales before counting any money toward her 2 college accounts or the $50,000 she gives to charity annually. The reason is risk capacity: her quarterly blackouts mean she can't sell outside the pre-set schedule if April catches her short. Every investment carries the risk of loss, and a forced sale after a drop would hurt more than holding cash for a few months.
Compare row 2 with row 3 in the checklist below: what's withheld so far against last year's tax decides your January payment.
The four-step gap calculation
Carol's safe-harbor test and cash reserve
Quick test: if federal withholding plus estimated payments is below 110% of last year's total tax (100% if last year's AGI was $150,000 or less), pay the difference by January 15 or raise withholding on your last paycheck. Then set cash aside for the rest of the gap.
| Item | Why it matters | Where to find it |
|---|---|---|
| Vest income this year | Sets the size of the gap | Year-end pay stub, vest confirmations |
| Federal tax withheld so far | Counts as paid evenly all year | Pay stub; later Form W-2 box 2 |
| Last year's total tax and AGI | Sets the 100% or 110% target | Prior Form 1040, total tax line |
| Withholding on IRA distributions | Default 10% is often too low | Form 1099-R box 4 |
| Estimated payments already sent | Credited only on the date paid | IRS online account |
Does paying 110% of last year's tax by January 15 make the bill go away?
No. Withholding and estimated payments change when you pay, not how much you owe. Carol's total tax stays $225,000 whether she pays in January or April. Paying 110% of last year's tax protects you from the penalty, not from the bill.
Followed too literally, that advice leaves her with $27,000 due April 15, shares locked behind a blackout and a pre-set trading schedule, and a rushed loan or missed payment plus IRS interest. What lowers the bill is different: spreading inherited IRA withdrawals over several years so less lands in the top bracket, or giving appreciated shares for her $50,000 of charity instead of cash (the donating stock page covers that). Paying early costs cash you could have held a few months longer, but it buys protection from the penalty and a forced sale.
Put the vest dates and IRS due dates in calendar order
April 15 is the due date for last year's balance and for the first estimated payment. June 15 and September 15 follow, and quarterly vest dates fall in between, each one widening the gap. In December, the last paycheck is the final chance to raise W-4 withholding, or to request extra withholding on an IRA distribution, and that withholding is treated as spread across the whole year. The fourth estimated payment is due January 15, and whatever you still owe is settled on April 15. If a deadline falls on a Saturday, Sunday or federal holiday, the IRS accepts payment on the following workday. For vests spread across the year, ESPP selling strategy and RSU tax planning are worth reading alongside this.
Which steps can you handle yourself, and which need Edward Jones Investments?
The rate-gap math and the 110% test take about 20 minutes with your last return and your final pay stub, so do that part yourself. A conversation with Edward Jones Investments is worth having when vests, inherited account withdrawals and a trading plan all compete for the same cash.
Then the order of sales and the size of the tax reserve matter more than the arithmetic. This page covers federal withholding only, not AMT from ISO exercises or state rules.
Paying 110% of last year's tax protects you from the penalty, not from the bill.
What people ask about a rsu withholding not enough
By what date do I need to make an estimated payment for an RSU vest in December?
The last estimated payment for the year is due January 15 of the next year. A December vest falls in that final period. If the date lands on a weekend or holiday, it moves to the next business day. Extra withholding on your last paycheck is an alternative and counts as paid evenly.
I have a 10b5-1 trading plan and quarterly blackouts, so can I sell shares to pay my April tax bill?
Only if the plan's schedule allows a sale before April 15. Blackouts and pre-set plans usually block sales outside their dates. So hold the estimated tax in cash from earlier scheduled sales, rather than counting on a sale when the bill arrives.
Is it better to raise W-4 withholding on my salary or send quarterly estimated payments?
W-4 withholding counts as paid evenly through the year, even if raised in December, which can cure an earlier shortfall. Estimated payments count only on the date sent. If you're late in the year, extra withholding usually works better; earlier in the year, either one works.
Will I still owe an underpayment penalty if I pay the full balance on April 15?
Possibly. The penalty is calculated by period, so paying the full balance in April doesn't erase it if earlier payments fell short of the safe harbor. Reaching 110% of last year's total tax (100% if AGI was $150,000 or less) by January 15 avoids it.
Does state income tax withholding on RSU vests usually fall short as well?
It can. Some states use their own supplemental withholding rates, which may sit below your actual state rate, and some states levy no income tax. Check your state's rules and your year-end pay stub. This article covers federal withholding only.
Official references
This material is general information only and does not address any individual's investment, tax or legal situation. Investing involves risk, including possible loss of principal. Before acting on any information here, speak with a financial advisor, tax professional or attorney about your circumstances.