RSUs and the under-withholding trap.

What is an RSU?

A restricted stock unit is a promise from your employer to give you shares of company stock once certain conditions — usually time-based vesting — are met. You're granted the units up front, but you don't actually own the shares (and owe no tax) until they vest. At vesting, the shares are delivered to you, and their fair market value on that date becomes taxable income.

How RSUs are taxed

RSUs are taxed in up to two stages. First, at vesting, the full market value of the shares is treated as ordinary income — the same as salary — and reported on your W-2. It's subject to federal income tax, Social Security and Medicare (FICA), and any state tax that applies. Second, if you hold the shares and sell them later, you owe capital gains tax only on the change in value after the vest date.

Do RSUs get taxed twice?

This is the most common RSU myth, and the answer is no. You're taxed once as income at vesting, and then only on additional gains if the stock rises before you sell. If you sell immediately at vesting, there's essentially no gain, so there's little or no second tax. The vest-date value becomes your cost basis — keep an eye on it, because brokerages sometimes report a $0 basis and cause you to be double-taxed on paper if you don't correct it.

The 22% withholding rule

When your RSUs vest, the IRS treats that income as supplemental wages — the same category as bonuses. Employers are generally allowed to withhold federal tax on supplemental wages at a flat 22%, and they usually do because it's simple. Above $1 million of supplemental wages in a single year, the rate on the excess jumps to 37%.

Sell-to-cover vs. cash vs. net shares

To pay that withholding, most employers use "sell-to-cover" — automatically selling enough of your newly vested shares to cover the 22%, and giving you the rest. Some let you pay cash or withhold shares ("net settlement"). Whichever method is used, the amount set aside is still based on that flat 22% — which is the root of the problem.

The under-withholding trap

Here's the catch: 22% is a withholding rate, not your actual tax rate. If you're a high earner, your RSU income likely stacks on top of a salary that already puts you in the 32% or 35% federal bracket. When only 22% is withheld against income really taxed at 35%, the roughly 13-point gap becomes a balance you owe at tax time — before state tax, the 3.8% net investment income tax, or multiple vests landing in the same year.

1. $200,000RSU income at vesting for an executive in the 35% bracket.
2. $44,000Withheld by the employer at the flat 22% supplemental rate.
3. $70,000Federal tax actually owed at roughly a 35% marginal rate.
4. ~$26,000Approximate shortfall before state tax and NIIT — a real April surprise.

How to avoid a surprise tax bill

Withholding is a blunt instrument — it doesn't know your total household income, filing status, other vests, or concurrent option exercises. Truing it up falls to you, and there are three main levers:

• Make estimated quarterly payments. Calculate the gap between your true marginal rate and the 22% withheld, and send the difference to the IRS using Form 1040-ES on the quarterly schedule.
• Increase your W-4 withholding. Ask payroll to withhold extra from your paycheck to "true up" — often simpler than quarterly payments.
• Understand the safe harbor. You generally avoid underpayment penalties if you pay at least 90% of your current-year tax or 110% of your prior-year tax (for higher earners with AGI over $150,000), even if a balance remains at filing.

RSUs and your bigger financial picture

Withholding is just the first decision. Once shares vest, you have to decide whether to hold or diversify, how much company stock is too much, and how RSUs fit alongside your retirement, tax, and estate planning. Selling right at vesting is often the simplest way to avoid adding concentration risk — since there's little gain, there's little extra tax — but the right answer depends on your full picture. That's where coordinated equity compensation planning earns its keep.

Disclosure: Skyview Financial Group, LLC is an SEC-registered investment adviser (CRD #310581). This article is educational only and is not individualized tax, legal, or investment advice. Tax figures (including the $1 million supplemental-wage threshold and safe-harbor percentages) are current as of August 2026 and subject to change; consult your CPA. The example is illustrative and does not reflect any specific client.