Most employers withhold on RSU vests at a flat supplemental rate, and that is where an RSU tax withholding shortfall comes from. Mariner Wealth Advisors sees it most when vests land on income already taxed at 37%. At an assumed 22% flat rate (confirm the IRS's current flat rate), every $100,000 that vests in the 37% bracket leaves $15,000 of federal tax unpaid.
For 2026, mandatory 37% withholding only starts once a calendar year's supplemental wages pass $1,000,000. Below that line, a plan can legally withhold far less than you owe. The gap shows up in April, and by then the shares are already vested and the money is spent.
We wrote this for executives whose RSUs vest quarterly and who wrote a large check to the IRS last April. If your bracket sits near your plan's flat rate, the formula below is all you need. The Mariner Wealth Advisors team built the page around one hypothetical executive and numbers you can check yourself.
The mistake: treating the shares withheld at vest as your tax paid
Kwame, a hypothetical 44-year-old general counsel at a biotech company, assumed the shares his plan kept at each vest covered the tax. They didn't. He owes about $90,000 of federal tax in April, and he may owe an underpayment penalty if he missed the 110% safe harbor.
Four related mistakes make the bill worse. Each has a price, and each has a plain fix.
- Paying the April bill by selling older vested shares during a blackout window. An insider such as a general counsel may not be allowed to sell then. Fix the gap through payroll before December instead.
- Meeting only the safe harbor and spending the rest. You avoid the penalty but still face the full balance in April. Set aside the difference as each vest happens.
- Ignoring state withholding. A plan can under-withhold there too. Compare the state line on your vest statement with your expected state tax.
- Reporting a $0 or blank cost basis from Form 1099-B on later sales. That taxes the vest value twice. Check the supplemental information that comes with the form and record the vest-day value as basis.
How does a flat withholding rate fall short on a $600,000 vesting year?
A flat withholding rate falls short whenever your bracket is higher than the rate your plan uses. At an assumed 22% withheld against 37% owed, a $600,000 vesting year leaves $90,000 of federal tax unpaid, before any state tax. The shares your plan keeps simply don't cover the full bill.
Here is Kwame's year (hypothetical). He is divorced, 44, files single and shares custody of two children. He has held every vested share he ever received. About $600,000 of RSUs vest each year, $150,000 a quarter, and his vested holdings have reached $900,000. His plan withholds an assumed 22% flat rate (confirm the IRS's current flat rate): $150,000 × 0.22 = $33,000 per vest. The tax owed is $150,000 × 0.37 = $55,500. The difference is $22,500 per vest, and four vests make $90,000. Because $600,000 is below the $1,000,000 line, mandatory 37% withholding never kicks in.
Why 37%? RSUs are ordinary wage income at fair market value on the vest date, stacked on top of salary. Kwame's salary already puts his taxable income above $640,600, where the top single rate starts for 2026. That means each dollar that vests lands in the 37% bracket.
You can reuse this: gap = (your marginal rate − the plan's withholding rate) × vest value. Each percentage point costs $1,000 per $100,000 vested.
Mariner Wealth Advisors doesn't guess where the stock is headed. It prices the shares scheduled to vest at today's price, estimates the gap, and reruns the estimate after each vest. Sold at vest, those shares carry a basis equal to their vest value, so covering the gap with them creates almost no capital gain.
When the shortfall grows or shrinks with vest size and career stage
Vest size matters because of the $1,000,000 line. Once a year's supplemental pay crosses $1,000,000, withholding jumps to 37% for 2026. An executive with $1,400,000 of vests has a 15-point gap on the portion up to $1,000,000 ($150,000) and none on the remaining $400,000.
Smaller vests are easier. When your marginal rate sits close to the flat rate, the gap per $100,000 is only a few thousand dollars, and extra W-4 withholding is usually enough.
The final working years go the other way. Accelerated vests at departure, or deferred comp payouts arriving in the same year, push more income into the top bracket. The gap widens even though salary stops.
One threshold decides penalty exposure. A prior-year AGI above $150,000 raises the safe harbor from 100% to 110% of last year's total tax. Most readers of this page are in the 110% group.
Which fix covers the gap: payroll withholding, estimated payments or extra shares?
Payroll withholding is usually the best fix because the IRS treats it as paid evenly through the year, while estimated payments count only on the date you make them. For Kwame's $90,000 gap, that difference decides whether a late correction still avoids penalties.
Notice the timing column in the table below, since that is where the four fixes differ most.
We'd rather cover the gap from the newly vested shares than from cash reserves, because the shares are the concentrated part of the balance sheet. Whether to sell at vest is a separate decision that our equity compensation work covers.
| Fix | Amount needed | Penalty timing | Main trade-off |
|---|---|---|---|
| Extra W-4 withholding | About $3,460 per paycheck | Treated as paid evenly | Lower take-home pay |
| Quarterly estimated payments | $22,500 by each due date | Credited when paid | Four deadlines to track |
| Higher withholding rate at vest | 37% instead of 22% | Counts as withholding | Not every plan allows it |
| Sell extra shares at vest | $22,500 more per vest | Cash still must be paid in | Blackout windows may block it |
- Extra W-4 withholding: automatic, and penalty-friendly even when added late. But it cuts take-home pay, and you must reverse it the next year.
- Estimated payments: exact control over amounts. But there are four due dates (April 15, June 15, September 15, January 15).
- Higher withholding rate at vest: the tax comes out of the shares. But not every plan allows it.
- Selling extra shares at vest: almost no capital gain, and it trims a concentrated position. But insider trading windows can block the sale.
Does the underpayment penalty apply if you pay the full balance in April?
Yes, it can. The IRS figures the penalty quarter by quarter, so paying everything in April doesn't erase it unless withholding plus estimates reached the safe harbor during the year. The balance due and the penalty are separate problems.
The safe harbor with prior-year AGI above $150,000 is 110% of last year's total tax, paid in through withholding and estimates. Hypothetically, if Kwame's prior-year total tax was $300,000, he needs $330,000 paid in during the year.
Here is the timing detail most people miss. The IRS treats a W-4 increase made in November as withheld in equal parts over all four quarters. A large estimated payment in January only counts for the last quarter.
This page covers federal rules only. Check your state's supplemental withholding rate and penalty rules separately.
What to do this week if your RSUs vest every quarter
Pull your last stock plan statement. Find the shares withheld and the rate used, usually labeled supplemental or flat rate.
Next, list the remaining vest dates and share counts, multiply by today's share price, and apply the gap formula. You don't need a price forecast, only today's quote.
Then pick one fix. Submit a new W-4 through payroll (it usually takes one or two pay cycles to take effect), or schedule an estimated payment before the next due date.
If you're an insider, check the trading window calendar with the legal or stock plan team before planning any extra share sale. A 10b5-1 plan can schedule sales ahead of time. Investing involves risk, including loss of principal, and concentrated stock raises it.
A per-vest checklist for Mariner Wealth Advisors clients and anyone with quarterly RSUs
Run these checks after every vest, not once a year.
Advisors at Mariner Wealth Advisors rerun the gap after every vest and send the client the updated figure, so the April number is known in advance. Send us your latest vest statement through the request form, and we'll start there.
- Shares vested and their fair market value
- Shares withheld and the rate used
- Your marginal federal rate
- The gap in dollars
- Where the gap is covered: W-4, estimate or extra sale
- State withholding checked
- Basis recorded at the vest-day value
- Year-level: total withholding plus estimates against 110% of last year's tax, before the last estimated-payment date
What people ask about a RSU tax withholding shortfall
Can I ask my employer to withhold more than the flat rate on RSUs?
Do shares withheld for taxes at vest count as a sale on my tax return?
Are RSUs subject to Social Security and Medicare tax?
Does my state withhold enough on RSU income?
What happens if I can't pay my full RSU tax bill in April?
Will I owe more tax when I later sell RSU shares I've held?
Primary sources
This content is general information and education. It is not individual investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Before making any financial decision about your equity awards or assets, consult a professional adviser who knows your full situation.