The rule payroll is following
When shares vest, their full market value on that date is ordinary income to you, and your employer has to withhold federal tax on it. The regulations put that income in the same bucket as bonuses and PTO payouts, called supplemental wages, and set a single flat withholding rate for the whole bucket. Payroll applies that rate. It is not an estimate of what you owe, and it was never meant to be one. That is the rule working as written rather than a mistake by your employer.
The reason is structural. Your payroll system knows what it has paid you. It does not know your spouse’s income, your other employer, your interest and dividends, or what you will deduct. A flat rate is the only thing it can apply without information it does not have.
Our RSU withholding shortfall calculator puts a figure on the gap for your own vest, salary and filing status.
Why that leaves a gap
Federal income tax is progressive: income is taxed in bands, and each additional dollar is taxed at the rate of the band it lands in. If the flat supplemental rate is below the band your vest lands in, the withholding is short by the difference on every dollar of the vest.
The gap widens rather than staying proportional, for a reason worth being precise about. A vest is not taxed at a rate of its own. It stacks on top of your salary and fills whatever is left of your current band and then spills into the ones above. So the last dollars of a large vest can be taxed several bands higher than the first, and the average rate on the whole vest is higher than the rate you think of as “your bracket”.
Why this is not your employer’s mistake
This is the part that causes the most confusion, and it is worth stating plainly: your employer withheld the amount the regulations tell them to withhold. There is nothing to dispute and nobody to complain to. The system is working as designed, and the design assumes you will settle the difference yourself.
Some employers will withhold at the higher supplemental rate on request, and some apply it automatically once your supplemental wages for the year pass a threshold. Neither is an admission that the normal treatment was wrong.
What to do with that
The first step is knowing the size of the gap, which is what the RSU withholding shortfall calculator works out. The second is deciding how to cover it, which is a separate question with three reasonable answers.