Getting RSUs is great—until tax time hits and you’re left wondering why you owe so much more than expected.
It’s not always obvious how RSU taxes work, especially when your paycheck withholdings don’t line up with the actual tax bill.
This post breaks it down. With this guide to RSU taxes, we walk through what to do before the year ends, what to think about while your RSUs are vesting, and how to prepare once tax season comes around.
The goal is to help you avoid surprises and make a plan that actually works.
Before Next Year: Set Things Up to Avoid Future Headaches
A lot of the stress around RSU taxes comes from not planning ahead. One of the most important things you can do—right now—is adjust your tax withholding.
Specifically, you want to maximize how much tax is withheld from your salary.
This starts with your W-4. Most people fill it out based on their real life. Married? You select “married.” Have kids? You note that too. That’s honest, right? But in this case, honesty on the W-4 can actually hurt you.
If you’re earning a high salary, getting bonuses, and vesting RSUs, the withholding tables used by your employer aren’t going to keep up with your real tax liability.
That’s why we tell all our clients—regardless of their actual family situation—to choose “single, no allowances” on their W-4. That setting triggers higher withholding from your salary, which helps cover the taxes on your RSU income and prevents underpayment surprises later.
Another big one: understanding supplemental withholding.
In the U.S., we have seven federal income tax brackets. The middle one is 24%, and the brackets go up to 32%, 35%, and 37%. But here’s the issue—RSUs are considered supplemental wages, and the default withholding rate on those is only 22%.
So, if you’re in the 32%, 35%, or 37% bracket (which many tech employees are), you’re being underwithheld by up to 15% on every dollar of RSU income.
For every $100,000 in RSUs, that’s a $15,000 tax bill that might not be covered.
That’s the number one reason clients come to us confused and frustrated—“I didn’t make more money this year… so why do I owe so much more in taxes?”
Most of the time, it comes down to underwithholding on RSUs.
And here’s where it gets better: some companies let you fix this directly. If your employer allows it, you might be able to elect a higher voluntary supplemental withholding rate—closer to your actual tax bracket.
If that’s available, it’s worth matching it to your top tax bracket from last year. That way, you’re much less likely to owe a big chunk come April.
During This Year: Selling RSUs and Planning for Taxes
Once the year is underway and your RSUs are vesting, the question becomes: should you sell or hold your shares?
The simplest move?
Sell all of your RSUs as they vest. Every trading window, sell the shares.
Not because the stock’s bad or you don’t believe in the company—but because RSUs are taxed like salary, even though they’re not actually cash.
They’re shares. And shares go up and down. If the stock drops and you haven’t sold, you could still owe taxes based on the value on vesting day—even if the stock’s worth way less now.
Selling right away gives you the cash. And having the cash is key if you end up owing additional tax. If you don’t sell and the stock tanks, you’re in a tough spot: you owe a tax bill, and your shares aren’t worth a lot less.
That’s why, for most people, the easiest path is to sell everything. It simplifies things and lowers risk.
That said, some people want to hold some shares—and that can work too. But it’s more complex. You’ll need a clear plan and probably a financial advisor to help make sure you’re not underestimating taxes or exposing yourself to investment risk you didn’t plan for. Selling some and holding some can be a good middle ground—it just takes more work and attention.
Either way, you’ll want to estimate your taxes partway through the year. For our clients, we usually run a tax projection around midyear. By that point, we know six months of income and RSU data, and there are only six months left to estimate. That means fewer unknowns—and better predictions.
Once you have that projection, you can figure out whether you’ll need to make estimated tax payments.
If so, great—you’ll factor those into your RSU sale strategy and set aside the cash. If not, then it’s about planning to pay in April and knowing what the number is.
We like to help clients set up a tax fund—basically, a separate account where you stash the money you’ll need for your tax bill. It’s like an emergency fund, except instead of planning for the unexpected, you’re preparing for something we know is coming.
You’ll want to keep it in something super safe—like a high-yield savings account or a short-term bond fund. The goal is to earn a little interest without risking the principal.
After This Year: File Early, Stay Flexible
Fast forward to January 2026. You’ve got your W-2 in hand, and it’s time to get serious about filing your tax return. Here’s our tip: don’t wait.
File your return as early as you can.
Why?
Because after an IPO or in any company with trading windows, you only get a few chances per year to sell RSU shares. One of those windows often falls between February and April—which could be your last chance to raise cash before your taxes are due.
By getting your return done early—ideally in the first few weeks of March—you’ll know exactly how much you owe. And if you need to sell RSUs to cover that amount, you’ll (hopefully) still be inside one of your company’s trading windows.
That timing is crucial. Miss the window, and you might be stuck scrambling for cash—or worse, paying late with penalties because you just don’t have the liquidity.
Recap: Managing Your RSU taxes
RSUs aren’t just extra money. They’re real income, taxed like cash—even though they show up as shares—and they can cause real problems if you don’t plan ahead.
The best thing you can do is stay proactive. Adjust your W-4 to increase withholding. Understand where you fall on the tax bracket scale. Look into whether your company allows higher withholding on RSUs. Make a plan for what to sell, run a tax estimate midyear, and set aside cash in a tax fund if needed.
And when January hits, don’t wait—filing early gives you more options, especially if you need to sell shares before April.
If this all sounds like a lot to manage, that’s because… well, it is.
It’s a lot to juggle, especially if you’ve never had to think about taxes this way before. If you want help sorting through it, KB Financial is here to help. It’s what we do with our clients every day!
You can set up a quick introductory call by heading over to our Contact page here.
Until next time!
