Federal RSU withholding is a flat 22% on most vests. Once a married couple's taxable income passes $403,550, each vested dollar is taxed at 32% to 37%, so a $200,000 vest can leave $20,000 to $30,000 unpaid until April. Maryland and Virginia withholding usually covers the state tax on the vest, DC's depends on your payroll provider, and none of them withholds anything when you later sell.
If you are a tech employee in Maryland, Northern Virginia, or DC and your first big RSU vest landed this year, this post explains the April bill before it arrives. I see the same pattern every spring: a household at Amazon in Arlington, Capital One in McLean, or a biotech on the I-270 corridor gets a W-2, files, and owes five figures they thought had already been withheld. The withholding was real. It was also the wrong rate.
What is the RSU withholding rate in 2026?
When RSUs vest, the value of the shares is wages. Your employer runs it through payroll like a bonus and withholds at the federal supplemental wage rate: 22% on the first $1 million of supplemental wages in the year, 37% above that (IRS Publication 15). Most companies do this by selling or holding back enough shares to cover federal, state, and payroll taxes and delivering the rest, which is why a vest of 500 shares can show up as roughly 340 in the brokerage account.
The 22% is a payroll default set by the IRS. It is not a projection of your tax bracket, and it does not know about your spouse's salary, your other vests, or your state.
The state layer is also a default, and the three DMV jurisdictions handle it differently.
| Layer | Default withholding on the vest | What you actually owe |
|---|---|---|
| Federal | 22% (37% above $1 million of supplemental wages) | Your marginal bracket: 24% once joint taxable income passes $211,400, and 32% to 37% above $403,550 |
| Maryland | 6.50% plus your county's top rate (9.70% in Montgomery County for 2026) | State rate up to 6.5% plus the county rate (3.20% in Montgomery County for 2026), plus a 2% surcharge on long-term gains when federal AGI exceeds $350,000 |
| Virginia | Flat 5.75% | 5.75% on nearly all income; no local income tax |
| DC | Depends on your payroll provider (regular tables or a flat rate) | 4% to 10.75%; 9.25% between $250,000 and $500,000, 9.75% between $500,000 and $1 million |
Why do I owe taxes on my RSUs if my employer already withheld?
Because the default rate is below your bracket, and the gap scales with the size of the vest.
For 2026, the 32% federal bracket starts at $403,550 of taxable income for a married couple filing jointly, 35% at $512,450, and 37% at $768,700 (IRS Rev. Proc. 2025-32). Two senior tech salaries in the DMV can clear the first of those before a single share vests.
Here is the math on our hypothetical composite household, Steven and Grace. They are not clients.
Grace is 35, lives in Montgomery County, and holds a senior role at a large public tech company. She has a $200,000 RSU vest in October. She and Steven file jointly, and their salaries already place them in the 35% bracket, so every dollar of the vest is taxed at 35% federally.
| Amount | |
|---|---|
| Vest value (ordinary income on the W-2) | $200,000 |
| Federal withheld at 22% | $44,000 |
| Federal tax owed at 35% | $70,000 |
| Federal gap waiting for April | $26,000 |
That is one vest. Four quarterly vests of the same size and the federal gap alone passes $100,000. Nothing about this is a mistake by the employer. The IRS sets the 22% default, and payroll applied it.
Whether Grace should sell those shares at vest is a separate decision, and I wrote about the cash test for selling or holding RSUs at vest in its own post. This post is about the bill.
Is Maryland RSU withholding enough?
On the vest itself, usually yes. Maryland's employer guide tells payroll to withhold a lump-sum bonus at the top state rate, 6.50%, plus the top local rate for the employee's county of residence (Maryland Employer Withholding Guide, 2026). If payroll processes the vest like a bonus, as it usually does, Grace in Montgomery County, where the 2026 local rate is 3.20%, has 9.70% withheld, or $19,400 on the vest.
Her real Maryland rate is at or below that. Since tax year 2025, Maryland taxes joint taxable income above $600,000 at 6.25% and above $1.2 million at 6.5%; for single filers the thresholds are $500,000 and $1 million (Maryland Comptroller tax alert on the 2025 rate changes). Add the county's 3.20% and Steven and Grace's marginal Maryland rate is 8.95% to 9.70%, so the vest is covered and may be over-withheld by up to $1,500. Check the Maryland line on the vest-period stub anyway. If payroll ran the vest through the regular tables instead, the number will be noticeably smaller.
Two Maryland details still catch people:
1. Montgomery County's rate changes in 2027. From tax year 2027 the county moves to brackets: 2.70% on the first $50,000 of Maryland taxable income, 3.00% up to $150,000, and 3.30% above that (Montgomery County Council resolution, May 2026). A household with a large vest pays 0.1 point more on it. Maryland's bonus rule uses the county's top rate, so withholding should rise to match.
2. The 2% capital gains surcharge, with nothing withheld at all. Since tax year 2025, Maryland adds a 2% tax on net capital gain, which means long-term gains as the IRS defines them, for anyone whose federal AGI exceeds $350,000 (Comptroller Technical Bulletin 58). Gains inside retirement accounts and on a primary residence sold for under $1.5 million are exempt; RSU shares in a brokerage account are not. Say Grace holds the shares for more than a year and then sells for a $50,000 gain. Maryland taxes that gain as ordinary income at state and county rates, then adds 2% on top. There is no withholding on a stock sale. Every dollar of that state tax is due through an estimated payment, or it shows up in April with interest.
| Event | Withheld | Owed | Gap |
|---|---|---|---|
| $200,000 vest (6.50% + 3.20% withheld) | $19,400 | $17,900 to $19,400, depending on bracket | None; up to $1,500 over-withheld |
| $50,000 long-term gain (8.95% to 9.70%, plus 2% surcharge) | $0 | about $5,500 to $5,850 | The whole amount |
The national advice to "hold a year for long-term rates" helps only on the federal side. Maryland gives no lower rate for long-term gains, and because the surcharge applies only to long-term gains, the state layer gets heavier, not lighter, for a high-AGI household that holds past a year.
Virginia RSU withholding: why the default usually matches
Virginia lets employers withhold supplemental wages at a flat 5.75% (Virginia Tax, employer withholding instructions). Virginia's top bracket is also 5.75%, and it starts at $17,000 of taxable income, so for a tech salary the state is effectively flat. There is no county or city income tax. On Grace's $200,000 vest, an Arlington or Fairfax resident would see $11,500 withheld and owe about $11,500.
Virginia taxes capital gains as ordinary income with no long-term rate and no surcharge, so the $50,000 gain costs about $2,875 in state tax, again with nothing withheld. Starting with tax year 2026, Virginia requires estimated payments when your liability after withholding is expected to exceed $1,000 (up from $150), and its safe harbor is 90% of the current year or 100% of the prior year (Virginia Tax, individual estimated payments). Virginia does not offer a 110% test; if your income jumped, 100% of last year's tax is the target.
DC RSU withholding: read the pay stub
DC is the hardest of the three to predict. Unlike the IRS, Maryland, and Virginia, DC does not give payroll one well-known flat rate for bonuses, and payroll providers handle a DC vest differently. Some run it through DC's regular withholding tables together with that period's wages; others apply a flat rate close to the top bracket. Depending on how the system annualizes a one-time $200,000 payment, the result can land above or below your real rate. The only way to know is to compare the DC line on the vest-period stub with your actual bracket.
DC's brackets run from 4% to 10.75%, and one schedule applies to single and joint filers alike (DC OTR, individual income tax rates). Income between $250,000 and $500,000 is taxed at 9.25%, between $500,000 and $1 million at 9.75%, and above that at 10.75%. For Steven and Grace, the vest would cost roughly $18,500 to $19,500 in DC tax, and the later $50,000 gain about $4,600 to $4,900, taxed as ordinary income with no long-term rate.
DC requires estimated payments if your liability will exceed $100 and is not fully covered by withholding. The safe harbor is 90% of the current year or 110% of the prior year, and the interest on an underpayment is 10% a year, compounded daily (DC OTR, underpayment of estimated tax).
Do I pay Maryland tax on RSUs if I work in Virginia?
Yes, if you live in Maryland. Maryland, Virginia, and DC tax commuters' wages where they live, not where the office is (Virginia Tax, reciprocity). RSU income is wages, so a Bethesda resident vesting at Amazon in Arlington owes Maryland state and county tax, and a Virginia resident working in DC owes Virginia. A DC resident working in Tysons owes DC, as long as they commute daily; Virginia's exemption for DC residents has that condition.
Make sure payroll knows. You file the nonresidence certificate of the place where you work: Form VA-4 if you work in Virginia and live in Maryland or DC, Form MW507 (line 4) if you work in Maryland and live in Virginia or DC, and Form D-4A if you work in DC and live anywhere else. Then confirm your employer is withholding for your home state. If your employer withheld for the wrong state, you are not double-taxed, but you file a nonresident return to get the money back while your home state charges interest on what it never received. I see this most often after a job change across the river.
Reciprocity covers wages only. Capital gains after vest follow your state of residence regardless of where you work.
How do I avoid an underpayment penalty on RSUs?
The federal rule is the safe harbor (IRS Topic 306; the 110% rule for higher incomes is in the Form 1040-ES instructions). Pay in, through withholding and estimated payments, at least one of these, and you owe no penalty no matter how large the April balance is.
| Jurisdiction | Estimated payments required when | Safe harbor | Voucher form |
|---|---|---|---|
| Federal | You expect to owe $1,000 or more after withholding | 90% of this year's tax, or 100% of last year's (110% if last year's AGI was above $150,000) | 1040-ES |
| Maryland | Tax is expected to exceed withholding by more than $500 | 90% of this year's tax, or 110% of last year's, at any income | PV (marked 502D) |
| Virginia | Liability after withholding is expected to exceed $1,000 | 90% of this year's tax, or 100% of last year's | 760ES |
| DC | Liability will exceed $100 and is not fully withheld | 90% of this year's tax, or 110% of last year's | D-40ES |
For most tech households the prior-year test is the cleanest target: last year's tax is a known number on a return you already filed. Once withholding plus estimates reach that figure, the size of the April balance does not trigger a penalty. The catch is a year with a big income jump: Virginia's 100% test is easy to meet, but the balance itself will still be large, and you need the cash on hand.
Three ways to close the gap, in the order I usually suggest them:
- Extra withholding on salary. Add a flat dollar amount per paycheck on Form W-4, Step 4(c), and the state equivalent. Withholding counts as paid evenly through the year, which fixes timing problems even if you start in October.
- A quarterly estimated payment. Federal due dates are April 15, June 15, September 15, and January 15 (IRS Form 1040-ES). Maryland and DC use the same calendar; Virginia's first installment is due May 1, then June 15, September 15, and January 15. A vest in October means a January 15 payment to each jurisdiction that is short.
- Sell shares for taxes on vest day. Shares sold at vest have almost no gain, so the sale adds nearly nothing to the bill. Move the proceeds to a separate account and set them aside for the tax bill. Some stock plan administrators also let you elect a higher withholding rate on vests; ask HR whether yours does.
The same math, with the alternative minimum tax layered on for ISO holders, is in the ISO and RSU tax planning guide for 2026.
A vest-year calendar for the DMV
- Before the first vest. Add salary, every scheduled vest, and bonus to project full-year income. Compare projected tax to projected withholding, federal and state. Confirm payroll has the right residency certificate.
- On vest day. Sell the tax slice if that is your method. Note the shares delivered and the cost basis (the vest value).
- Within the quarter. Make the estimated payment to each jurisdiction that is short, or raise W-4 withholding to cover it by December.
- Before selling held shares. Estimate the gain, then the federal rate, the state rate, and, in Maryland, the 2% surcharge on long-term gains. Set aside the tax before the proceeds are spent.
- Every January. Re-run the projection with the new IRS figures. The risk of holding too much employer stock is worth revisiting at the same time.
Bottom line
The 22% is not a tax rate. It is a placeholder. For a DMV tech household in the 32% to 37% bracket, a $200,000 vest can leave $20,000 to $30,000 of federal tax unpaid. The state layer is gentler on the vest: Maryland's bonus withholding and Virginia's flat 5.75% usually cover it, and DC depends on your payroll provider, so read the stub. The state surprise comes later. Nothing is withheld on the gain when you eventually sell, anywhere, and in Maryland a long-term gain can carry the extra 2%.
If you want your vest calendar and the withholding gap modeled for your household, book a call. More guides are on the hub for tech employees, and our services page explains how equity compensation planning fits the rest of the plan.
FAQ: RSU withholding in Maryland, Virginia, and DC
Why do I owe taxes on my RSUs if my employer withheld?
Because the employer withheld at the IRS supplemental rate of 22%, not at your bracket. A married couple with taxable income above about $400,000 is in the 32% to 37% federal bracket, so a $200,000 vest is under-withheld by $20,000 to $30,000. State withholding usually comes closer, but nothing is withheld when you later sell the shares.
What is the RSU withholding rate in 2026?
Federally, 22% on the first $1 million of supplemental wages in a year and 37% above that. Maryland withholds 6.50% plus your county's top rate (9.70% in Montgomery County), Virginia a flat 5.75%, and in DC the amount depends on your payroll provider. None of these is a projection of what you will owe.
Is 22% withholding enough for RSUs?
Rarely for a tech household. It matches only the 22% federal bracket, which ends at $211,400 of taxable income for a joint return in 2026. Above that, each RSU dollar is short by 2 to 15 cents. Compare projected tax with projected withholding and close the gap before the year ends.
Do I pay Maryland tax on RSUs if I work in Virginia?
Yes, if you live in Maryland. Under Maryland, Virginia, and DC wage reciprocity, RSU vests are taxed by your state of residence, not where the office is. File Form VA-4 with a Virginia employer to stop Virginia withholding and have Maryland tax withheld instead. Capital gains after vest also follow your residence.
How do I avoid an underpayment penalty on RSUs?
Meet a safe harbor. Federally, pay in 90% of this year's tax or 100% of last year's, 110% if last year's AGI was above $150,000. Maryland and DC use 110% of the prior year; Virginia uses 100%. Extra W-4 withholding, a quarterly estimated payment, or selling a tax slice at vest each work.
Sources
- IRS Publication 15 (2026), supplemental wage withholding
- IRS Rev. Proc. 2025-32, 2026 tax brackets
- IRS Topic 306, penalty for underpayment of estimated tax
- IRS Form 1040-ES (2026), estimated tax, due dates, and the 110% rule for higher incomes
- Maryland Comptroller, 2026 Employer Withholding Guide (lump-sum bonus rate, page 9)
- Maryland Comptroller, tax alert on 2025 state and local income tax rate changes
- Maryland Comptroller, Technical Bulletin 58, 2% capital gains surcharge
- Maryland Comptroller, Form 502UP (2025), underpayment of estimated tax
- Maryland Comptroller, Form MW507 (2026), employee withholding exemption certificate
- Montgomery County Council, resolution setting county income tax brackets from tax year 2027
- Virginia Tax, employer withholding instructions (flat 5.75% supplemental rate)
- Virginia Tax, individual estimated tax payments
- Virginia Tax, reciprocity, and Form VA-4
- DC Office of Tax and Revenue, individual income tax rates
- DC Office of Tax and Revenue, underpayment of estimated tax interest
Written by Danni Shen, CFA®, Co-Founder & Chief Investment Officer of Allset Wealth. Allset Wealth is a financial planning firm in Hunt Valley and North Bethesda, Maryland, serving tech employees, federal employees, and business owners across Maryland, DC, and Virginia.
This article is for educational purposes only and is not tax, legal, or investment advice for your specific situation. Withholding, bracket, and estimated-tax rules depend on your employer's plan and your household's facts. Steven and Grace are a hypothetical composite, not clients, and all dollar examples are illustrative. Consult your CPA and a licensed fiduciary before acting. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities and investment advisory services offered through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Allset Wealth.
