If you work in tech in the Seattle area and hold RSUs, there's a good chance you've had this experience: a batch vests, your paystub shows taxes withheld, and you still end up owing a meaningful amount in April. That's not a mistake on anyone's part — it's how RSU withholding is designed to work, and most people don't find out until the bill arrives.
RSUs Are Taxed at Vest, Not at Sale
Nothing happens for tax purposes when RSUs are granted. The taxable event is vesting — the moment the shares actually become yours. On that date, the fair market value of the shares is added to your W-2 wages as ordinary income, whether you sell immediately or hold. That same vest-date value also becomes your cost basis for the shares going forward.
This is a different mechanism than incentive stock options, and there's no Section 83(b) election available for RSUs — that election only applies to restricted stock awards, where actual property transfers at grant. With an RSU, nothing transfers until vesting, so there's nothing to elect against.
Why 22% Withholding Almost Never Covers What You Owe
When RSUs vest, your employer withholds federal tax at the flat supplemental wage rate — 22% on cumulative supplemental wages up to $1 million from that employer in the year, 37% on anything above that. This is the same rate used for bonuses, and it's set by IRS rule, not calculated based on your actual income.
The problem is straightforward: 22% is well below the marginal rate most people receiving meaningful RSU income actually fall into. If your combined salary and vested RSU income puts you in the 32% or 35% federal bracket, every dollar of that vest is really taxed at your marginal rate, but only 22% was withheld against it. The gap between what was withheld and what you actually owe shows up as a balance due when you file, often with an underpayment penalty attached if it's large enough.
On top of the income tax gap, Social Security withholds 6.2% up to the 2026 wage base of $184,500, Medicare withholds 1.45% with no cap, and an additional 0.9% Medicare surtax applies once combined wages exceed $200,000 for single filers or $250,000 for married filing jointly.
Have a big RSU vest coming up? Find out how far your withholding will fall short before the shares land, not in April.
Washington's No-Income-Tax Status Doesn't Close the Gap
This is the part specific to working here rather than in a state with its own income tax. Washington has no state income tax, so there's no state withholding on your RSU income at all — which can create a false sense that the tax picture is simpler than it actually is. (A new 9.9% tax on household income above $1 million takes effect in 2028 and faces legal challenges, but it won't affect most households.)
It isn't simpler, it's just smaller in one dimension. The federal withholding shortfall exists regardless of what state you're in — a Washington employee and a California employee with identical income and identical RSU vests face the exact same federal underwithholding gap. The absence of state tax means one less thing to plan for, not one less reason to plan for the federal gap. If anything, Washington employees sometimes underestimate their total tax exposure specifically because there's no state withholding line reminding them something is still being calculated incorrectly.
The Cost Basis Mistake That Causes Double Taxation
This is the single most common error we see, and it can genuinely cost people real money if it's not caught.
When you eventually sell vested shares, your brokerage issues a 1099-B — and many brokerages report the cost basis as $0, or fail to include the vest-date value that was already taxed as ordinary income. If you file your return using that $0 basis without adjusting it, you end up paying capital gains tax on the full sale price, on top of the ordinary income tax you already paid at vest. That's genuine double taxation on the same dollars.
The fix is to correct the basis on Form 8949 to reflect the actual fair market value at vest — the same figure that was already included in your W-2 wages. Only the change in value between vesting and selling should be taxed as a capital gain or loss when the shares are sold.
What to Actually Do About the Shortfall
A few practical moves reduce the surprise at filing time. Adjusting your W-4 to withhold additional tax from your regular salary can offset the RSU shortfall without requiring a separate quarterly payment system. Making quarterly estimated payments is the other route, particularly useful if your vesting schedule is uneven throughout the year.
The most useful thing, though, is simply knowing the gap exists before the vest happens, not after. If you know a large batch is vesting in a specific quarter, that's the moment to plan around it — adjusting withholding, setting aside cash, or making an estimated payment — rather than discovering the shortfall for the first time in April.
The useful time to model the gap between what gets withheld and what you'll actually owe is before a large vest, not after it. That's the planning we do with tech employees across Bellevue and Seattle, so April doesn't bring a surprise.