Case study: a full vesting year at a public company
An engineer with a large RSU year, and the tax bill nobody warned her about.
RSUs · Case studies
What does a great RSU year actually feel like when the tax bill arrives? Like getting a raise and a surprise invoice in the same envelope. Here is a composite of a client situation I see constantly: a senior engineer at a public company, a big slug of RSUs vesting across the year, and a spring she did not see coming. Names and numbers are illustrative, the pattern is real.
This is a composite for illustration. The figures are placeholders chosen to show the mechanics, not real tax rates or limits. Every rate-dependent number below is flagged for the reviewer to confirm.
The setup
Call her Maya. Strong base salary, and a meaningful RSU grant vesting in quarterly chunks through the year. On paper it was a fantastic year. Her equity portal showed shares landing every quarter, the stock was up, and she felt, reasonably, like things were going right.
Each vest, her broker sold a portion of the shares to cover tax withholding and dropped the rest into her account. That sell-to-cover step is the part that lulled her. It looked like the taxes were being handled.
What she missed
The withholding was happening at the flat supplemental rate, not at her real marginal rate. Her salary already put her near the top of the federal brackets, so the flat rate withheld on each vest came in well under what she actually owed.
This gap exists because supplemental wage withholding is a flat rate that can sit below a high earner’s true marginal rate. For 2026 that flat rate is 22% on the first $1,000,000 of supplemental wages in the year, and 37% on anything above $1,000,000 2026.
Multiply that per-vest shortfall across a full year of vesting and it added up to a real number. On top of it, the size of the year pushed her into the extra Medicare and net investment income territory, none of which the flat withholding touched.
For 2026 the additional Medicare tax is an extra 0.9% on wages above $200,000 for single filers and $250,000 for married filing jointly, and the net investment income tax is 3.8% on investment income once your income clears those same thresholds, $200,000 single and $250,000 married filing jointly 2026.
She also held most of the shares after each vest. Not as a decision, just by not selling. By year end, one stock, her employer, made up a large share of her net worth. The full reasoning on why that is the real risk lives in sell at vesting or hold.
The two bills
So Maya walked into spring with two problems stacked on top of each other. First, an income tax shortfall, the gap between the flat withholding and her real rate across every vest. Second, a concentration problem: a paycheck and a portfolio both riding on the same company.
The income shortfall was the urgent one, because under-withholding does not just mean a bill, it can mean a penalty. The mechanics of that are in the under-withholding surprise.
What we did
Size the shortfall
We estimated her real marginal rate including state tax, applied it to the full year of vested value, and subtracted what had already been withheld. That difference was the number to cover.
Cover it before the penalty grew
She made an estimated payment for the gap and bumped her W-4 so the next year would not repeat the problem. Withholding through payroll counts as paid across the year, which helped her catch up.
Set the sell-at-vesting default
Going forward, vested shares get sold on a schedule unless there is a deliberate reason to keep them. Selling at vesting triggers little extra tax, because she already paid ordinary tax on the value.
Unwind the concentration on a plan
We built a rules-based selling schedule to bring the one-stock position down over time, so the decision was a system, not a guess about the stock price.
The lesson
A big vesting year is a good problem, but it is still a problem if you let the flat withholding and the default-to-hold make your decisions for you. The hidden price was not the tax itself, it was the time and cash she had to scramble for because nobody sized the gap in advance.
Plan the vesting year before it happens: know your real rate, fund the gap on vesting day, and decide your selling rule on purpose. If your year looks like Maya’s, a short fit check is a cheap way to find out what you are walking into.
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