Bonus vs RSU Tax Comparison

How bonuses and RSUs are taxed differently, and why RSU withholding can seem higher than bonus withholding. Understanding the tax treatment differences.

TL;DR

•RSUs are taxed at your marginal income tax rate (not capital gains rate). Your employer typically withholds 22% federal (or 37% if over $1M) plus state tax and FICA.
•You typically receive 60-75% of RSU value after taxes, depending on your tax bracket and state.
•Withholding on RSUs may not match your final tax liability—you'll reconcile this when you file your return.

Tax treatment: bonuses vs RSUs

Both bonuses and RSUs are taxed as ordinary income, but the withholding methods and timing can make them appear very different on your paycheck. Understanding these differences helps you plan for tax season and manage cash flow.

Both Are Ordinary Income

Both bonuses and RSUs are taxed as ordinary income at your marginal tax rate. The difference is in how and when taxes are withheld.

Bonus tax withholding

Bonuses are typically subject to supplemental income withholding at a flat rate of 22% for federal income tax (or 37% for amounts over $1 million). Your employer may use one of two methods:

The percentage method is more common and predictable. With this method, a $50,000 bonus would have approximately $11,000 withheld for federal tax (22%), plus state tax and FICA.

Percentage method: Withholds a flat 22% (or 37%) federal tax, plus state tax and FICA. This is the most common method.
Aggregate method: Adds the bonus to your regular paycheck and calculates withholding as if you earn that amount every pay period. This can result in higher withholding.

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RSU tax withholding

RSUs are also subject to supplemental income withholding, typically at the same 22% federal rate (or 37% for high amounts). However, RSU withholding often feels different because:

If your employer uses sell-to-cover, you might not notice the tax impact on your paycheck, but you'll receive fewer shares. If they withhold from your paycheck, you'll see a much smaller paycheck that period.

Sell-to-cover: Most employers use sell-to-cover, which sells a portion of your shares to pay taxes. This doesn't reduce your regular paycheck, but you receive fewer shares.
Paycheck withholding: Some employers withhold from your regular paycheck, which can dramatically reduce your take-home pay for that period.

Why RSU withholding can seem higher

RSU withholding can appear higher than bonus withholding for several reasons:

FICA taxes: RSUs are subject to Social Security (6.2% up to wage base) and Medicare (1.45% + 0.9% for high earners). Bonuses are also subject to FICA, but the impact may be more noticeable with large RSU vesting events.
State tax: If you're in a high-tax state like California or New York, state tax on RSUs can add 8-13% to your tax burden, making the total withholding seem much higher.
Lump-sum impact: Large RSU vesting events are often larger than typical bonuses, so the absolute dollar amount of taxes withheld is higher, even if the percentage is the same.

Withholding vs. final tax liability

Both bonuses and RSUs use flat-rate withholding (typically 22% federal), which may not match your actual tax rate. This means:

Plan for Tax Season

Don't assume that 22% withholding covers your full tax liability. High earners often owe additional tax when filing, especially if they're in high-tax states or have other income sources.

Higher bracket: If you're in a higher tax bracket (32%, 35%, or 37%), you'll owe additional tax when you file, regardless of whether the income came from a bonus or RSUs.
Lower bracket: If you're in a lower tax bracket (10%, 12%, or 22%), you may receive a refund, as the 22% withholding was higher than your actual rate.

Key differences summary

While both bonuses and RSUs are taxed similarly, here are the key differences:

Timing: Bonuses are paid in cash immediately. RSUs vest and convert to shares, which you can then sell.
Withholding method: Bonuses typically reduce your cash payment. RSUs often use sell-to-cover, which reduces the number of shares you receive.
Tax rate: Both use the same 22% federal withholding rate, but RSUs may feel more expensive due to FICA and state tax on larger amounts.
Final tax: Both are ordinary income, so your final tax liability depends on your total annual income and tax bracket, not the source of the income.