Net RSU Yield After Federal, State, and FICA

The four layers stacked on a vest

RSU income passes through four distinct tax mechanisms, and they do not share a base or a cap. Treating them as one blended “tax rate” is where most planning goes wrong. Each layer applies its own rule to the same fair-market-value figure.

Federal ordinary income

The vest amount enters Box 1 of the W-2 as ordinary income — the same line as salary, distinct from the long-term capital gains that may follow if shares are held after vest. For 2025, the 37% top federal rate applied to single-filer taxable income above $626,350; for 2026 that threshold rose to $640,600, per the IRS inflation adjustments released in IR-2025-103. The 35% bracket begins at $256,225 single for 2026 and the 32% bracket at $201,775. An employee earning $300,000 in salary before any vest is already in the 35% bracket, so an incremental $100,000 RSU vest is taxed federally at 35% climbing into 37% — not at the 22% an employer typically withholds. That single mismatch drives most April surprises, and it is the mechanism behind the RSU sell-versus-hold decision that follows every vest.

The supplemental withholding gap

Here is the structural flaw. Employers withhold federal tax on RSU vests at the IRS flat supplemental rate — 22% on the first $1 million of supplemental wages in a calendar year, 37% on anything above $1 million, under Publication 15. The rate does not adjust to the employee’s actual bracket. A worker whose marginal rate is 35% but whose vest is withheld at 22% is under-withheld by 13 points on every dollar. On a $200,000 vest, that is a $26,000 shortfall the employee owes at filing, even though nothing was hidden. The equity compensation tax framework for high earners treats this gap as the default condition, not the exception.

FICA: the layer with no bracket

RSU income is wages, so it carries Social Security and Medicare tax. Social Security runs 6.2% but stops at the wage base — $176,100 for 2025, rising to $184,500 for 2026 per the SSA. A $150k+ employee has usually crossed that ceiling on salary alone before the first vest, so most vest income escapes the 6.2%. Medicare does not stop. The 1.45% rate applies to every dollar with no cap, and the Additional Medicare Tax adds 0.9% on wages above $200,000 for single filers, bringing the rate on top-tier vest income to 2.35%. Employers withhold that 0.9% once an employee’s wages cross $200,000 regardless of filing status. The Medicare layer is small per dollar but unavoidable, and it compounds the state and federal stack.

State income tax

This is the layer that splits otherwise-identical employees by hundreds of basis points. California taxes RSU income at its full ordinary rate, topping out at 13.3% on taxable income above $1 million — nine progressive brackets plus the 1% Behavioral Health Services surcharge (formerly the Mental Health Services Act tax), per the FTB. A $150k+ single filer below the millionaire threshold typically sits in California’s 9.3% or 10.3% bracket on incremental vest income, climbing toward the top as vests stack. California also layers State Disability Insurance — 1.2% on all wages with no cap in 2025, rising to 1.3% in 2026 — onto the wage base, a detail the headline 13.3% rate omits. The mechanics behind California’s heavy RSU tax burden sit almost entirely in this uncapped, no-preference structure.

New York reaches a 6.85% marginal bracket for single filers around $215,400 of taxable income and climbs to 10.9% at the very top, per the state Department of Taxation and Finance. A New York City resident adds up to 3.876% in city tax, producing a combined state-and-city marginal burden that can exceed 14% before a dollar of federal tax applies. Texas, Florida, Washington, and Nevada impose no state income tax at all — a fact that turns the tax cost of an IPO equity award into a relocation question for some employees.