Pre-IPO Advisors

RSU settlement tax estimator

Your company IPO'd and RSUs settled all at once — but sell-to-cover withheld at 22%, not your real bracket. Estimate the federal and state gap, so you know exactly how much to set aside before the next quarterly deadline.

Simplified model: uses 2026 federal brackets (IRS Rev. Proc. 2025-32) without standard deduction, which slightly overstates tax for lower-income scenarios. Excludes FICA (1.45% Medicare on all RSU income; Social Security capped at $184,500 of combined wages), the 0.9% Additional Medicare Tax, AMT, and multi-state allocation. RSU income is ordinary income — NIIT (3.8%) does not apply to the settlement itself, only to capital gains on shares sold later. Supplemental withholding assumed at 22% flat (IRS Pub. 15-T, 2026), shifting to 37% only if RSU income alone exceeds $1 million. Model the real number with a CPA or equity-comp advisor.

Why sell-to-cover almost always falls short

When RSUs settle, your employer withholds shares to cover taxes via a sell-to-cover transaction. The withholding rate is set by IRS Publication 15-T at 22% for the first $1 million of supplemental wages in the calendar year (37% on the excess). That rate is a floor — it exists because the IRS needs a single number employers can apply before knowing a household's full picture.

The problem: most tech employees settling a large RSU position are already in higher brackets. Add $500K of RSU income on top of a $300K salary and the RSU income is taxed at 37% federally — 15 points above what was withheld. At $500K, that's $75,000 in uncovered federal tax, due quarterly and compounding if left unpaid past the deadline.

State taxes compound this further. California withholds supplemental wages at 10.23%, but an employee in the 13.3% top bracket on a large settlement still has a state gap. Texas, Florida, and Washington have no state income tax — that side of the gap is zero, but the federal side is unchanged.

2026 quarterly estimated tax deadlines

Underpayment penalties accrue quarter-by-quarter. Paying in a later quarter doesn't eliminate earlier underpayment — pay the gap as soon as you know it.

What to do before the next quarterly deadline

  1. Calculate your real marginal rate. Estimate your combined 2026 income — salary plus settlement — and find your federal bracket. Add state. The estimator above does a first pass; a CPA or equity advisor does the precise version.
  2. Set aside the gap immediately. Move the underpayment amount to a short-duration account (T-bills or money-market) the day you see this number. Don't spend it; it's not yours.
  3. Make the quarterly payment before the deadline. Pay via IRS Direct Pay (IRS.gov) or EFTPS for federal; each state has its own portal. If the next quarterly deadline is close — Q2 falls June 16, 2026 — pay this week.
  4. Plan for ongoing vesting. If you still hold unvested grants, each future vest is another ordinary income event. Build the 22%-vs-bracket gap into your cash management for every settlement date through your vesting schedule.

After the settlement: the shares you kept

Shares you hold after settlement have a cost basis equal to the settlement-day price. When you eventually sell:

See the IPO lockup playbook for how to manage a concentrated post-IPO position across your lockup calendar, or the SpaceX employee guide for the SPCX-specific tranche schedule.

Get the exact number, not an estimate

The gap above is a model. A fee-only equity-comp advisor runs the real version — federal and state marginal analysis, FICA, NIIT, AMT if options are in the picture, specific quarterly payment amounts, and a plan for the shares you kept. Free match, no obligation, and if your next quarterly deadline is this week, say so.