Restricted Stock Units(RSUs): Your First Grant and the Reality No One Explains

For many technology professionals in the Dallas–Fort Worth Metroplex, receiving an RSU grant is their first exposure to meaningful equity compensation. It represents potential future wealth tied to the success of their organization.

What is often misunderstood, however, is that typically under federal tax law, RSUs are treated as income at vesting before they function as an investment. This distinction is critical and it’s the reason many first-time recipients face an unexpected tax bill in April.

Below is what actually happens when your RSUs vest, and why the default rules often leave high-earning tech professionals under-withheld.

The Mindset Shift: Income First, Stock Second

Restricted Stock Units are a promise to deliver company shares to you in the future, typically at no cost. Because you do not purchase the shares, federal tax law treats the full value of vested RSUs as compensation, similar to a cash bonus just paid in equity instead.

The Vesting Event Is a Taxable Event

The moment your RSUs vest, their fair market value is taxed as ordinary income. This amount is added to your W-2 wages and is subject to:

Federal income tax
Social Security tax
Medicare tax

Even if you don’t sell a single share, you are still taxed on the value of the stock on the day it lands in your account.

The “22% Surprise”: Why Withholding Often Falls Short

The most common issue for tech professionals comes from how RSUs are withheld.

Because RSUs are classified as supplemental wages (similar to bonuses), employers are required to withhold federal income tax at a flat statutory rate of 22% for supplemental income under $1 million.

Where the Gap Appears

For many DFW technology professionals total compensation often places them in higher marginal tax brackets, such as 32%, 35%, or even 37%.

If your employer withholds 22%, but your actual marginal rate is 32%, there is a 10% gap that is not being collected through payroll.

That shortfall doesn’t disappear. It shows up when you file your return.

A Real-World Example: The DFW Tech Professional

Consider a hypothetical software architect at a major Metroplex employer.

The Vest: $100,000 of RSUs vest during the year
Withholding: The company withholds 22% ($22,000) for federal income tax
Actual Tax Liability: Marginal tax rate of 32% ($32,000)
Shortfall: $10,000

If you have multiple vesting events or larger grants, this under-withholding can compound quickly potentially triggering a large balance due and underpayment penalties.

Why This Catches First-Generation Equity Earners Off Guard

For professionals who are the first in their families to receive equity compensation, this system often feels counter-intuitive.

Many people are taught that:

W-2 withholding is generally accurate
Tax refunds are the norm

RSUs disrupt that expectation.

Additional Factors to Be Aware Of

Income clustering: Vesting can concentrate large amounts of income into a single tax year, unexpectedly pushing you into a higher bracket
Golden handcuffs: Unvested RSUs are typically forfeited if you leave your employer, making them a retention tool not guaranteed compensation

How to Proactively Manage the Tax Impact

Equity compensation rewards preparation. A few common strategies include:

Sell-to-cover: Many employers automatically sell shares to cover the 22% statutory minimum—helpful, but often insufficient
Quarterly estimated payments: Work with a CPA or tax professional to calculate the withholding gap and make estimated payments if needed
W-4 adjustments: You can increase withholding on your regular salary to offset RSU shortfalls throughout the year

The Bottom Line

RSUs don’t need to create surprises:

Treat each vesting event as a taxable bonus rather than “free stock”
Plan ahead for tax obligations
Manage withholding gaps proactively
Ensure your equity compensation contributes to long-term wealth—not unexpected stress