RSU Withholding Rates for 2026: Federal, California and Washington

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

For 2026, the default federal withholding rate on RSUs is a flat 22%, rising to a mandatory 37% on supplemental wages above $1,000,000 from one employer in the calendar year (IRS Pub. 15, 2026). In California, employers using the flat method add 10.23% for state income tax on bonuses and stock options, plus 1.3% SDI, Social Security and Medicare (EDD DE 44). Washington withholds no state income tax on wages.

So the rate you see on a vest confirmation is a payroll convention, not your tax rate. It also changes during the year. Below is the full rate stack for 2026, why it moves, and a worked example for a two-income family at about $950,000.

The full RSU withholding rate stack for 2026

When RSUs vest, the shares count as wages. Your employer treats them as supplemental wages and withholds several separate taxes from the vest, usually by selling or holding back shares. Each line has its own rule.

Sources: IRS Pub. 15 (2026), IRS Additional Medicare Tax Q&A, EDD DE 44 (2026 guide), EDD rates and withholding, WA Cares Fund.

The “default RSU withholding” you see in a stock plan portal is the federal line plus whatever state and payroll lines apply. Your broker does not choose the rate. It applies the numbers your employer’s payroll sends it.

Why your RSU withholding rate drops later in the year

Two of the payroll lines depend on how much that employer has paid you so far this year. Social Security stops at $184,500 of wages. The 0.9% Additional Medicare Tax switches on at $200,000. For a high earner, a February vest often carries Social Security and no Additional Medicare. A May vest can carry the reverse. The net result is that later vests usually have a lower total withholding rate than the first one, even though nothing about your tax bracket changed.

Each employer tracks these thresholds on its own. If you change jobs mid-year, the new employer starts Social Security again from zero. You get the excess back when you file, but your cash flow looks different from what the vest schedule suggests.

Worked example: a $950,000 Bay Area household, vest by vest

Assumptions (illustrative): married filing jointly, two children under 12. Partner A earns a $300,000 salary plus $400,000 of RSUs vesting in four $100,000 tranches (February, May, August, November). Partner B earns a $250,000 salary. Household wages are $950,000. The employer uses the flat methods. Figures are for 2026; California brackets are the 2025 schedule because 2026 has not been published.

Now compare the federal line with what the family actually owes. With the $32,200 standard deduction, taxable income is $917,800. The RSUs are the top $400,000 of it. About $250,900 of that falls in the 35% bracket (which runs from $512,450 to $768,700) and $149,100 in the 37% bracket (over $768,700). Federal tax on the RSUs is about $142,982. Withholding at 22% across four vests was $88,000 (this assumes salary withholding covers the tax on the salaries). The federal gap is roughly $55,000, due in April 2027.

The Additional Medicare line also comes up short. The household owes 0.9% on wages over $250,000 for a joint return, or $6,300. Each employer only withheld on its own employee’s wages over $200,000: $4,500 for Partner A and $450 for Partner B. That leaves another $1,350.

California is different at this income. Assuming about $10,000 of California deductions, the RSU layer runs through the 9.3%, 10.3% and 11.3% brackets for about $39,655 of state tax. The 10.23% flat withholding came to $40,920, so the state line roughly covers itself. Above about $1.49 million of California taxable income (2025 schedule) the top bracket is 12.3%, plus 1% on taxable income over $1 million, so for a $2 million household the 10.23% leaves about 3 cents short on every RSU dollar at the top.

The same family in Seattle

In Washington the February vest would carry about $30,230 of withholding (federal, Social Security, Medicare and WA Cares), and later vests about $24,930. There is no state income tax on wages, so there is no state gap. The federal gap of about $55,000 is identical, because the federal rules do not change by state. Shares held after vest and sold at a long-term gain can fall under Washington’s 7% capital gains tax above its standard deduction, 9.9% on gains above $1 million (WA DOR). Washington has also enacted a 9.9% income tax on AGI above $1,000,000 starting in 2028, with details still pending (WA DOR).

When the 37% rate applies, and why it can over-withhold

Once one employer has paid you more than $1,000,000 of supplemental wages in a calendar year, it must withhold 37% federal on the excess, whatever your W-4 says. This hits executives with large refresh grants or a big first vest after a cliff. On that excess, 37% usually matches the real top federal rate, but the first $1,000,000 was still withheld at 22%, so a balance is usually still due. Over-withholding at 37% is uncommon: for 2026 the 37% bracket starts at $768,700 of taxable income for a joint return, so supplemental wages above $1,000,000 normally land in it already. It can happen when large deductions or losses (for example a large charitable gift) pull taxable income down.

How to change your RSU withholding rate

• Plan election. Some equity plans let you choose a higher federal rate at vest, often up to 37%. Others only offer 22%. Check your stock plan portal or ask payroll; the answer is plan-specific.
• W-4 Step 4(c) on salary. If the plan is locked at 22%, add a flat extra amount per paycheck on either spouse’s W-4. Federal withholding is treated as paid evenly through the year for penalty purposes unless you elect otherwise (Form 2210 instructions), so a fourth-quarter increase can repair the whole year.
• Estimated payments. Quarterly payments on Form 1040-ES work too. To stay clear of the underpayment penalty, pay at least 90% of this year’s tax or 110% of last year’s tax when last year’s AGI was over $150,000 (Form 1040-ES, 2026).
• Sell at vest and set cash aside. Selling right after vest creates little extra tax because your basis is the vest price. Whether to keep the shares is a concentration decision, covered in withhold to cover vs sell to cover.

Common mistakes with RSU withholding

• Reading the 41% total on a vest slip as “fully covered”. Nearly half of that is payroll tax and state tax. The federal income tax line is still 22%.
• Assuming a refund last year means this year is fine. A larger vest, a higher share price, or a spouse’s raise moves more income into the 35% and 37% brackets.
• Fixing only one spouse’s payroll. The gap belongs to the joint return, so the extra withholding can come from whichever paycheck is easier to adjust.
• Forgetting the Additional Medicare shortfall when both spouses work and combined wages pass $250,000. Each employer only withholds on its own employee’s wages over $200,000.

What to write down for your kids

RSU withholding is a good example of a decision that looks automatic but is not. A one-page note on how you set withholding each year (who checks it, by which month, and why you sell or keep shares at vest) is the kind of record your children can read later and understand the reasoning, not just the outcome. Conversations fade. Documentation compounds.

RSU withholding questions families ask

Does RSU income show up on my W-2?

Yes. The value of vested shares is included in Box 1 wages, with the federal tax withheld in Box 2, in the Social Security wages box up to the $184,500 wage base, and in the Medicare wages box in full. Many employers also list the RSU amount in Box 14. Because the income is already on the W-2, it should not be added again when you report the later sale; see how to report RSUs on your tax return.

Is RSU underwithholding a penalty problem or just a bill?

Usually just a bill, if you meet a safe harbor. Paying 110% of last year’s total tax on time through withholding and estimates (when last year’s AGI was over $150,000) avoids the federal underpayment penalty even if you still owe a large balance in April. Without a safe harbor, the penalty is calculated like interest on each quarter’s shortfall. California has its own estimated tax rules, so check both returns.

Why does my vest show such a high percentage withheld?

The confirmation adds every line together: federal, Social Security, Medicare, state and SDI. Early in the year that can be above 40% in California. It falls once you pass the Social Security wage base. The figure that matters for the April bill is the federal line against your real bracket. To estimate the full-year number, use the steps in our RSU tax calculator guide.

Next step

Before your next vest, list both spouses’ expected wages and RSU vests for the full year, compare the federal withholding at 22% with your top bracket, and set a Step 4(c) amount or an estimated payment for the difference. If you want that checked alongside your grant schedule, our equity compensation and tax management work at the Age Five Family Office™ starts with a Tax & Wealth Assessment.

This is general education, and the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

Connect on LinkedIn →  · About Kevin