# RSUs and Taxes: Why High Earners Get a Surprise Bill - Shree Accounting LLCSource: https://shreecpas.com/rsu-taxes/ Publisher: Shree Accounting LLC, 688 Tabor Road, Morris Plains, NJ 07950 · (201) 888-1035 · pras@shreecpas.com> RSUs and Taxes: Why High Earners Get a Surprise Bill Every April If you work for a public company—or a private one heading toward an IPO—a chunk of your compensation probably comes as Restricted Stock Units (RSUs). They're a great benefit. They're also the single most common reason high earners get a nasty surprise on# RSUs and Taxes: Why High Earners Get a Surprise BillJune 24, 20262 minute readIf you work for a public company—or a private one heading toward an IPO—a chunk of your compensation probably comes as **Restricted Stock Units (RSUs)** . They’re a great benefit. They’re also the single most common reason high earners get a nasty surprise on their tax return. Here’s why it happens and how to get ahead of it.## How RSUs are taxedRSUs are taxed in two separate moments:- **At vesting:** when your shares vest, their full market value on that day is taxed as **ordinary income** —the same as your salary. This happens whether or not you sell the shares. - **At sale:** when you later sell, any change in value from the vesting date is a **capital gain or loss** —short-term if you held a year or less, long-term if longer.## Why the surprise bill happensHere’s the trap. When RSUs vest, your employer usually withholds shares to cover taxes—but the default federal withholding rate on this kind of supplemental income is often **22%** . If you’re a high earner whose actual marginal rate is 32%, 35%, or 37%, that withholding falls well short of what you owe.> **The result:** the IRS treats your vested RSUs as income at your top rate, but only ~22% was withheld. The gap shows up as a balance due in April—sometimes a very large one.For someone in New Jersey, layer state tax on top, and a big vesting year can produce a five-figure shortfall that nobody warned them about.## What to do about it- **Project your vesting income early.** Know what’s vesting this year and what bracket it pushes you into, so you can plan for the real liability—not the 22% that was withheld. - **Cover the gap with estimated payments or extra withholding.** Increasing W-2 withholding late in the year is treated as paid evenly across the year, which can cure an underpayment without penalty. - **Decide deliberately whether to hold or sell.** Many people hold vested shares out of inertia, building a dangerously concentrated position in one company. Selling at vesting (when there’s little or no gain) is often the cleaner choice—but that’s a personal risk decision. - **Mind the one-year line.** If you do hold, crossing from short-term to long-term capital gains can cut the tax on any appreciation substantially. - **Watch the 3.8% NIIT.** Gains on sale can trigger the Net Investment Income Tax once your income crosses the threshold.## The bottom lineRSUs aren’t taxed unfairly—they’re just taxed in a way the default withholding doesn’t keep up with. The fix is almost always planning, not a clever loophole: know your vesting schedule, project the real liability, and fund it before April. Do that, and the surprise disappears.This article is general information, not tax advice, and tax rules change. Your situation may differ—consult a qualified CPA about your specific circumstances.Written and reviewed by**[Prasanna Thiruvenkatachari, CPA, CFE, CGMA](https://shreecpas.com/about/)**Founder of Shree Accounting in Morris Plains, NJ. Two decades in multi-state, partnership and individual tax.This article is general information, not tax advice for your situation. Tax law changes often; check the date above.[Previous article The NJ BAIT Election Explained: A SALT-Cap Workaround](https://shreecpas.com/nj-bait-election/)[Next article CPA for Medical Practices in NJ](https://shreecpas.com/cpa-for-medical-practices-in-nj/)## Want this applied to your situation?Book a free 45-minute strategy session with an experienced CPA.[Book a strategy session](https://shreecpas.com/#contact) [(201) 888-1035](tel:+12018881035)--- General information, not tax advice for your situation.