RSU Taxes: Hit Safe Harbor Early and Keep Your Money Working
For many people who receive a meaningful amount of RSU income, tax season often brings outcomes that don’t match expectations. When your company performs well, vesting income rises quickly, while withholding remains fixed. Leaving you with some unexpected RSU taxes. By the time you file your return, the gap between the two can show up as a tax bill that feels both avoidable and out of step with how the year actually felt.
A commonly used and often effective approach is remarkably simple: meet your IRS safe-harbor requirement early in the year and invest the difference instead of letting it sit with the government. This may help make RSU income feel more intentional and align with your financial plan.
Why safe harbor matters — especially for RSU holders
RSUs are taxed when they vest, and the default corporate withholding rate (typically 22%) often falls short for employees in higher brackets. That gap can lead to underpayment penalties and springtime tax stress.
Safe harbor is an IRS provision that may help taxpayers avoid underpayment penalties if certain requirements are met. If you pay in enough during the year — either 90% of your current-year projected tax liability or 110% of your prior year’s total liability — you’re shielded from penalties, even if your RSU withholding is insufficient.
In other words, safe harbor doesn’t eliminate your total tax bill, but it may help reduce uncertainty about potential penalties.
How the strategy works
Rather than waiting until year-end to see whether your RSU withholding kept pace, a proactive approach may help you stay ahead and potentially keep more of your cash working throughout the year.
1. Identify your safe harbor threshold
Start by clarifying the target you need to hit. Using last year’s tax liability — or projections for the current year — you can determine whether the 90% or 110% rule applies and calculate your safe harbor amount. This becomes the foundation of your strategy.
2. Reach that threshold early in the year
Once you know the number, take steps to reach it as early as makes sense. This may involve adjusting your payroll withholding or making estimated tax payments. Hitting safe harbor early can protect you from underpayment penalties for the year, depending on your individual circumstances, even if your RSU income increases later..
3. Keep the remaining cash working for you
After meeting safe harbor, you can be more intentional with any additional cash flow. RSU withholding rarely matches your true tax bracket, which means many people end up unintentionally overpaying the IRS. Planning ahead may help reduce the likelihood of overpayments and manage cash flow in ways that align with your financial goals.
By reaching safe harbor early, you may reduce the risk of overpaying — and give your remaining funds a chance to grow rather than sit idle with the government.
4. Finalize the full picture the following spring
In the first or second quarter of the following year, review your full tax landscape: your income, vest values, deductions, and withholding pattern. With that complete picture, you may be able to make any final payment in April with far fewer surprises and greater clarity close to the tax year.
The benefits of a proactive RSU tax strategy
A proactive approach to RSU taxes gives you a steadier footing throughout the year. When you meet safe harbor early, your cash flow may become more predictable, and uncertainty about whether withholding aligns with vesting may be reduced, depending on individual circumstances. You move through the year knowing the essentials are covered.
This approach also allows your money to stay productive. Instead of making excess payments to the IRS and receiving a refund later, you’re able to retain more of your funds in the meantime and ensure they are aligned with the priorities you’re working toward..
It also brings RSU planning into the broader rhythm of your financial life. Tax decisions, cash flow, and investment strategy begin to support one another rather than operating in separate lanes.
If you’d like help mapping out this strategy for your compensation and cash flow, we’re here to walk you through it.
About the Author: Bryce Baker, CFP®, is a Lead Advisor at Brighton Jones. He helps high-income professionals and families design tax-efficient investment strategies and retirement plans aligned with their values and long-term goals.
This content is for informational and educational purposes only and should not be construed as individualized advice. For individualized advice tailored to your specific circumstances, please consult with your adviser. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication.
