The 22% RSU Withholding Worked Before 2026. Here's Why It Doesn't Anymore.

Before 2026, when your RSUs vested, your employer withheld 22% for federal income tax. That was the standard supplemental wage rate under the Tax Cuts and Jobs Act. For most tech employees, it felt like a lot taken out at once, but it was roughly in the right neighborhood.

That changed on January 1, 2026. The TCJA individual rate provisions expired, and the 22% supplemental withholding rate went with them. The new default rate depends on how much supplemental income you receive in a year and where your total compensation lands in the brackets. But here is what matters: for anyone earning above roughly $250,000 from wages and RSUs combined, the gap between what gets withheld and what you actually owe has widened. Significantly.

For more on tech executive tax strategy, see You Can't Change the 22% RSU Withholding. Here's What You Can Do Instead..

How RSU withholding actually works

When your RSUs vest, the fair market value of the shares on the vest date is treated as supplemental wages. Your employer is required to withhold federal income tax at the applicable supplemental rate. They also withhold Social Security (up to the wage base), Medicare, and state taxes.

The key number is the federal rate. Under TCJA, it was a flat 22% for supplemental income up to $1 million and 37% above that. Most tech employees with RSUs fell under the 22% rate on the bulk of their vesting shares.

In 2026, the individual rates reverted to the pre-TCJA structure. The top marginal rate moved from 37% back to 39.6%. The brackets shifted. And the supplemental withholding rules now operate against a different backdrop. For many high earners, the 22% default withholding rate no longer exists as a standard option. The mandatory flat rate for supplemental wages above $1 million is 39.6%. Below that threshold, employers may still apply a flat rate, but the gap between that flat rate and your actual marginal rate is larger than it was.

When Your RSUs Vest, the Withholding Probably Isn't Enough covers supplemental wage rate in more detail.

The gap between withheld and owed

Consider a senior engineer at a public tech company in California. Her base salary is $220,000. In 2026, she has 3,000 RSUs vesting at $140 per share, for vesting income of $420,000. Total W-2 compensation: $640,000.

Her employer withholds 22% on the RSU portion, or about $92,400. But her actual federal marginal rate on that income is 35% or more, meaning she owes roughly $147,000 on the same income. The difference, about $55,000, is not withheld. It comes due when she files her return in April 2027.

That gap does not sit in a savings account earning interest while she waits. It compounds as an underpayment penalty unless she addresses it through estimated tax payments or increased withholding from her cash salary.

If she adjusts nothing, the IRS will assess an underpayment penalty on top of the balance due. The penalty is essentially interest on the amount that should have been paid throughout the year, calculated from each quarterly deadline.

State withholding compounds the problem

California withholds RSU income at its own supplemental rates. But California's top rate is 13.3%, and the state withholding rate on supplemental income may be lower than what a high earner actually owes. The combined federal-plus-state gap can reach $70,000 or more on a single year's vesting.

For someone who moved out of California but whose RSUs are still partially sourced to California based on the ratio of days worked in California during the vesting period, the calculation becomes even more complex. The employer may not withhold California tax at the correct rate, or may withhold when California's claim is partial. Either scenario creates a mismatch.

How to close the gap before the deadline

There are three practical ways to address the shortfall.

First, adjust your W-4 to increase withholding from your cash salary. File a new W-4 with your employer requesting additional withholding per pay period. Divide the expected shortfall by remaining pay periods in the year and add that amount on line 4(c). This is the simplest method because the additional withholding is treated as paid evenly throughout the year, which satisfies the IRS's timing rules.

Second, make estimated tax payments directly. The remaining deadlines for 2026 are September 15 and January 15, 2027. A payment made by September 15 covers the third quarter. Calculate the shortfall from vesting that occurred during the first three quarters and pay enough to reach the safe harbor threshold — generally 100% of your prior year tax liability or 90% of your current year liability, whichever is smaller.

Third, if you have a 10b5-1 trading plan that sells shares at vest to cover taxes, review the sell-to-cover percentage. The default is often set at 22% for federal. In 2026, you may need to instruct your plan administrator to increase the sell-to-cover to 35% or more to prevent a cash crunch when the return is filed.

The September 15 deadline matters now

If you had RSUs vest in the first half of 2026 and did nothing to adjust your withholding or estimated payments, the Q3 estimated tax deadline on September 15 is your best opportunity to catch up before the underpayment penalty grows further. The IRS calculates the penalty from each quarter's deadline, so a payment made in September stops the clock on the first and second quarter underpayments.

The amount to pay is not a guess. Your pay stubs show year-to-date federal withholding. Compare that to what your projected total tax liability will be, divided proportionally across the quarters. Any shortfall paid by September 15 reduces the penalty period.

One gap, fixed now, beats a surprise later

RSU withholding in 2026 is not a filing-season problem. It is a planning problem that lands in cash flow the moment your shares vest. The difference between the amount your employer withholds and the amount you owe is real money, and it is not small. A tech employee with a meaningful RSU position can easily face a six-figure gap.

The fix is straightforward: calculate the gap, increase withholding or make an estimated payment, and do it before the Q3 deadline passes. The alternative is writing a check in April and paying interest on top of it for the full year you waited. A tax strategist can run the numbers for your specific vesting schedule and income level, but the principle is the same regardless: the 22% that felt adequate before 2026 is not adequate now.

If your RSUs vested this year and you have not adjusted your withholding, the next step is a conversation about your specific numbers. Call (619) 280-2700 or email info@RoadmapTax.com to set up a free 15-minute discovery call. The September 15 deadline is closer than it looks.