A standard failure mode for equity-comp employees: RSUs vest, the employer withholds federal at the 22% supplemental rate (section “Supplemental withholding rate”), and the actual marginal rate is 37% federal plus state. On a $500,000 RSU vest, federal alone under-withholds by $500,000 (0.37 - 0.22) = $75,000; for a CA resident, state stacks another $500,000 (0.143 - 0.1023) $20,000 because the CA bonus supplemental rate of 10.23% sits well below the 14.3% top bracket. The combined $95,000 arrives as an April 15 cash demand the W-2 employee did not budget for, often the same April the SALT cap denied them the state-tax deduction they used to get. Add an estimated-tax penalty on top if the safe harbor was not also met.
The mechanic: at each vest, immediately compute the under-withholding delta and wire it into the April-15-maturity sinking-fund T-bill. Treat the vest as if it had withheld at the correct rate; the money was never yours to spend. The same logic applies to year-end performance bonuses — 22% supplemental withholding leaves the same gap for any taxpayer above the 22% federal bracket. The year-end-planning section in the tax chapter (section “Year-End Planning With Stock Compensation”) covers the moves that shrink the gap (cover transactions, W-4 adjustments, additional withholding via Q4 bonus); this section is about funding what remains after those.