Why do companies withhold only 22% on RSUs?

Because RSUs are supplemental wages. Publication 15 lets employers use a flat 22% federal rate on supplemental wages up to $1 million in a payroll period, instead of running the vest through your W-4. It is legal. It is also usually too low for HENRYs.

Is the 22% rate the tax I actually owe?

No. 22% is withholding, not your tax. RSUs are ordinary wage income at vest. You owe whatever bracket salary + vest + bonus puts you in, plus Medicare and state.

How do I fix an RSU withholding gap?

Three levers: extra W-4 withholding on salary, a larger estimated 1040-ES payment, or selling additional shares if payroll lets you raise withhold on the vest. The 110% safe harbor (if last year’s AGI was above $150k) stops the underpayment penalty even if you still owe at filing. After August 2026 the remaining dates are September 15 and January 15.

The 22% rule

RSU withholding is 22%. You are not in the 22% bracket.

Reviewed August 21, 2026. About. Not tax advice.

Yes: most US employers withhold 22% federal income tax on RSU vests and cash bonuses because IRS Publication 15 sets a flat supplemental rate of 22% on supplemental wages up to $1 million (37% above that). If your marginal bracket is 32%, 35%, or 37%, the vest is under-withheld. The shortfall is ordinary income tax, not a mystery fee.

The arithmetic

Federal gap ≈ tax(salary + RSUs + bonus) − tax(salary) − 22% × (RSUs + bonus). Treat salary as roughly correctly withheld via W-4; stress only the supplemental. For a 2026 single California IC on $285k salary, $210k RSUs, $40k bonus, that federal gap is $32,500 and still due after a simplified CA add-on is $34,925.

A vest over $1 million in one paycheck is withheld at 37% federal, not 22%. Almost nobody in this audience hits that on a single vest.

What this page is not

Not a filing engine. Not legal or tax advice. Brackets follow IRS Revenue Procedure 2025-32 (2026 tax year). State figures are a high-earner simplification, not a full Form 540 / IT-201. A CPA signs the return.

FAQ

Why do companies withhold only 22% on RSUs?: Because RSUs are supplemental wages. Publication 15 lets employers use a flat 22% federal rate on supplemental wages up to $1 million in a payroll period, instead of running the vest through your W-4. It is legal. It is also usually too low for HENRYs.
Is the 22% rate the tax I actually owe?: No. 22% is withholding, not your tax. RSUs are ordinary wage income at vest. You owe whatever bracket salary + vest + bonus puts you in, plus Medicare and state.
How do I fix an RSU withholding gap?: Three levers: extra W-4 withholding on salary, a larger estimated 1040-ES payment, or selling additional shares if payroll lets you raise withhold on the vest. The 110% safe harbor (if last year’s AGI was above $150k) stops the underpayment penalty even if you still owe at filing. After August 2026 the remaining dates are September 15 and January 15.

Sources

IRS Publication 15 (Circular E) — Supplemental wage withholding: 22% up to $1 million, 37% above.
IRS tax year 2026 inflation adjustments (Rev. Proc. 2025-32) — 2026 federal brackets and standard deduction.
IRS estimated taxes — 1040-ES installment dates and underpayment penalty.

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