RSUs often look heavily taxed because several taxes are collected at once: federal income tax, applicable state and local tax, and payroll taxes. RSUs do not have a special higher federal income-tax rate. Their compensation value is taxed like wages. But a large award can put more income into higher brackets, and the shares sold for withholding may still leave part of the final bill unpaid.
Why did so many shares disappear?
A typical public-company award delivers shares at vesting and reports their market value as compensation on your W-2. Your employer must fund the associated withholding. It may retain some shares or arrange a sale, leaving you with fewer shares than the award’s gross count.
Look at the payroll breakdown before comparing percentages. A 22% federal withholding rate is only one component. Here is an illustrative $10,000 award using that method, an assumed 5% state rate, and ordinary employee payroll taxes:
| Withholding item | Assumed rate | Amount |
|---|---|---|
| Federal income tax | 22% | $2,200 |
| State income tax | 5% | $500 |
| Social Security | 6.2% | $620 |
| Medicare | 1.45% | $145 |
| Total | 34.65% | $3,465 |
This example assumes all of the award is below the Social Security wage base, no Additional Medicare Tax applies, and there are no local taxes or fees. Your result can differ. The IRS employer tax guide explains the federal withholding and payroll rules.
The remaining $6,535 of value can feel like a steep reduction from the headline award. It reflects several payments, not a single 34.65% federal RSU tax.
Vesting and settlement can differ for some awards. The grant’s terms matter, especially at a private company.
Are RSUs taxed more than salary?
The compensation is generally ordinary income, like salary. An award can push some of your total income into a higher bracket, but that higher rate applies to the dollars in that bracket, not retroactively to every dollar you earned.
Withholding methods can differ. Employers may use the optional 22% supplemental-wage method when eligible. A mandatory 37% applies to the portion of supplemental wages above $1 million under the employer-aggregation rules. Neither percentage determines your final household income tax.
Why a large withholding amount can still be insufficient
Assume $100,000 of RSU compensation falls entirely in the 35% federal bracket. Tax attributable to that income is $35,000. Withholding of 22%, or $22,000, leaves a $13,000 federal difference before other payments, credits, or adjustments.
Someone whose effective tax on the award is lower could instead overpay. There is no automatic shortfall. The relevant comparison is the projected full-year tax against all withholding and estimated payments.
Will selling the shares cause a second tax on the same income?
The compensation value generally becomes your basis in the delivered shares. If shares worth $100 at delivery sell for $110, the additional gain is $10 per share, not $110. If they sell for $70, the $30 loss follows capital-loss rules; it does not reverse $30 of wage income. See the IRS guidance on compensation and basis.
Check the brokerage statement against your stock-plan tax supplement. A missing or incorrect basis can make a return appear to tax the compensation twice.
How can you avoid an unexpected bill?
Start with two records: the award statement shows what happened to the shares, and the pay statement shows which taxes were paid. Use them with the remaining award schedule and other household income to project the year. Compare the result with total withholding and estimated payments, then adjust payments if needed.
Underpayment penalties depend on the IRS payment rules and exceptions, not simply on owing money at filing. Separately decide how much employer stock you want to keep. Holding shares after settlement does not turn the original compensation into lower-taxed capital gains.
Start with the RSU calculator. For the mechanics of how shares fund withholding, see sell-to-cover and other withholding methods.