The 22% RSU Withholding Worked Before 2026. Here's Why It Doesn't Anymore.
She's a VP of Engineering at a large public tech company. Seven years in. Her RSUs vest quarterly at about $150,000 each quarter, and her company withholds 22% for federal taxes, same as it always has. The shares hit her brokerage account, she reviews the number, and she moves on. Nothing looks different.
But something did change. The Tax Cuts and Jobs Act individual tax rates expired at the end of 2025. The 22% withholding that used to cover the gap between what was taken out and what she actually owed now leaves a bigger shortfall. And with Q3 estimated taxes due September 15, there is still time to fix it before the year closes.
We have written before about why the 22% withholding rate was already a problem for tech executives. That post was written before the rates changed. The gap we described then has only widened.
What Actually Changed in January
The TCJA temporarily lowered individual income tax rates from 2018 through 2025. When those rates expired at the end of last year, the brackets reverted to pre-TCJA levels. For high-income earners, the top marginal rate went from 37% back to 39.6%. The 35% bracket went to 33%. Every bracket that matters to a senior tech executive moved up.
RSUs are taxed as ordinary income when they vest. The full value of the shares (minus the strike price, which is typically zero) lands on your W-2 as wages. So when the tax rates go up, the tax on those RSUs goes up too. Same number of shares. Same quarterly vest. Higher effective tax.
Why the 22% Supplemental Rate Stays Flat While Your Tax Rate Went Up
Here is where the mechanics get interesting. The IRS treats RSUs as supplemental wages and allows employers to withhold at a flat 22% for the first $1 million of supplemental pay in a year. Above $1 million, the rate jumps to 37%. But 22% is the default, and for most senior tech executives with quarterly vests totaling well under $1 million per quarter, that is what their company uses.
Before 2026, that 22% was already short for someone in the 32% or 35% bracket. But the gap was manageable. You made it up with estimated tax payments or withheld extra from your salary.
Now the same scenario plays out with higher rates. Consider the representative case: a senior director whose RSUs vest at about $120,000 a quarter. Her company withholds 22%, or roughly $26,400. But her actual marginal rate is now 33% (the reverted bracket in that income range). The tax on that vesting event is about $39,600, leaving a gap of about $13,200 each quarter. Multiply that across four quarters and you are looking at a shortfall in the range of $50,000.
That is not a scare number. It is how the math works in a common situation. The gap exists whether you pay attention to it or not. The only question is when you discover it.
The September 15 Deadline Is Your Best Correction Point
If you are a W-2 employee with RSU income, you have three ways to cover the withholding gap:
- Ask your payroll department to increase supplemental withholding on future RSU vests.
- Adjust your W-4 to withhold extra from your regular salary.
- Make quarterly estimated tax payments to the IRS (and California FTB if you are in state).
The September 15 estimated tax payment is the most powerful of these options, because it is the last one that covers income from the first three quarters of the year. We covered the broader Q3 estimated tax fix in a previous post. What follows is specific to the post-TCJA gap. After September 15, the next estimated tax payment is not due until January 15 of the following year. At that point, you are making up for the full year at once.
Here is how it works in practice. If your Q1 and Q2 RSUs have already vested and you are looking at a shortfall, calculate the additional tax you owe on that income. Then add an estimate of what Q3 and Q4 will produce. Divide by two (for the two remaining estimated tax payments, September 15 and January 15) and pay that amount by September 15.
The goal is not to get the number perfect. The goal is to get close enough that you avoid an underpayment penalty and a surprise in April.
And if you are in California, the same logic applies to your state return. The FTB expects quarterly payments on the same schedule, and while California does not follow TCJA rates in the same way, the state's 9.3% to 13.3% brackets mean the withholding gap is even wider when you combine federal and state.
What Most Preparers Don't Look At Mid-Year
Here is the difference between a firm that files your return and a firm that plans your outcome.
A preparer gets your documents in March or April. They see the RSU income on your W-2. They see the 22% withholding. They calculate the tax. They show you the number you owe. And then they close the file until next year.
A strategist looks at the same information in July. They see the Q1 and Q2 vesting events. They know the 2026 rates are higher. They model what Q3 and Q4 will produce. And they tell you exactly how much to pay by September 15 so you are not writing a check for $50,000 next April that you could have spread across two manageable payments.
The difference is not in the math. The math is straightforward. The difference is in the calendar. One approach waits until the return is due. The other uses the mid-year deadline to give you control over the outcome.
The Short Version
The TCJA rates expired. Your 22% RSU withholding is now more inadequate than it was before. The September 15 estimated tax payment is your best opportunity to correct the gap before the year closes. Calculate the shortfall, pay what you can, and move on with the confidence that you are not storing a surprise for April.
Want to Know Exactly Where You Stand?
A 15-minute call is enough to tell you whether your current withholding is on track or if you are heading for a shortfall. We will look at your vesting schedule, compare it against the 2026 rates, and tell you what to pay by September 15. No engagement letter, no commitment, just a clear answer.
Call (619) 280-2700 or email info@RoadmapTax.com to book a free discovery call.
FAQ
What is the supplemental wage withholding rate for RSUs in 2026?
The supplemental wage withholding rate remains 22% in 2026 for the first $1 million of supplemental pay. Amounts over $1 million are withheld at 37%. This rate did not change when the TCJA rates expired.
How much more will I owe on my RSUs under the post-TCJA rates?
The exact amount depends on your total income and filing status. In a representative scenario where a senior tech executive has RSUs vesting at about $120,000 per quarter, the higher marginal rates can create a withholding gap of roughly $13,000 per quarter between what is withheld at 22% and what is actually owed.
When is the Q3 estimated tax payment due in 2026?
The Q3 estimated tax payment is due September 15, 2026. This is the last estimated tax payment that covers income from the first three quarters of the year and is your best opportunity to correct an RSU withholding shortfall before year-end.
Does California also have higher tax rates on RSUs in 2026?
California did not follow the TCJA rate structure, but its top marginal rate of 13.3% means that California residents face an even wider combined withholding gap when you add state taxes on top of the federal shortfall.
What happens if I don't adjust my estimated tax payments?
If you do not adjust your withholding or estimated payments and your RSU withholding falls short of your actual tax liability, you may face an underpayment penalty when you file your return in April, in addition to the tax itself.
Can I fix this through my company's payroll instead of estimated tax payments?
Yes. You can ask your payroll department to increase the supplemental withholding rate on future RSU vests, or adjust your W-4 to withhold extra from your regular salary. Both approaches reduce or eliminate the need for separate estimated tax payments.
