The RSU withholding gap, explained
Employers often withhold taxes on vesting RSUs at a flat supplemental rate. If your real rate is higher, you owe the difference later. That difference is the withholding gap.
The RSU withholding gap is the difference between what your employer withholds on vesting shares and what you actually owe at your true marginal rate. High earners are the most likely to be caught by it.
Why it happens
Supplemental wages like RSU vesting are frequently withheld at a flat federal rate. For someone in a higher bracket, that flat rate under-withholds, and the shortfall shows up at tax time.
How to plan for it
Estimate the gap with your CPA, set aside cash or shares to cover it, and consider estimated payments so you are not surprised, or penalized, at filing.
Common questions
How big is the gap?
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