Laid Off With Severance and a Final RSU Vest? The 22% Withholding Trap to Fix Before Year-End

You have one move to make before year-end, and it is not the rollover. When severance and a final RSU vest land in the same year, the flat 22% supplemental withholding covers far less than a high earner actually owes. The decision now is whether to send a fourth-quarter estimated payment, and how large.

Why 22% is not your rate

Start with what your employer is required to do, because it is not discretionary. Severance is supplemental wages. So is the cash from a final RSU vest. Both get withheld at a flat rate the IRS sets, not at your marginal rate.

IRS Publication 15 (2026), Circular E, is blunt about it: “The withholding rate on supplemental wages remains 22%.” That same publication sets a 37% rate once supplemental wages paid during the calendar year pass $1 million.

Keep in mind 22% is a withholding rate, not a tax rate. A high earner stacking severance on top of a final equity event is almost certainly in a marginal bracket above 22%. The withholding does its job on paper and still leaves a gap.

There is a second layer. IRS Publication 15 (2026) also requires your employer to withhold an additional 0.9% Additional Medicare Tax on wages above $200,000. That gets withheld, but it does nothing to close the income-tax gap underneath it.

The same-year stack

Two income events rarely happen together, but a layoff forces them into one calendar year. One, severance paid out on your way out. Two, equity that vests or settles at separation. Put them in the same twelve months and the income stacks into your top brackets, while each piece was withheld at 22% in isolation.

This is live right now. The latest round of tech and analytics layoffs includes a 15% company-wide workforce reduction at Fair Isaac Corporation (FICO), disclosed in an SEC filing dated October 1, 2026, with notifications beginning the week of October 5, 2026. Those are company facts. What matters for your return is the tax-year math, not the headline.

What actually happens to your unvested and vested shares at separation is not a general rule. It is governed by your plan document, and the terms vary. We map the mandatory path in equity compensation at separation. Check your plan document before you assume anything vests or accelerates.

The one lever you still control

You cannot change the 22% withholding after the fact. You can send a fourth-quarter estimated tax payment, and that is the lever.

The target is a safe harbor, not a perfect number. Per the IRS, you can avoid the underpayment penalty by paying at least 90% of this year’s tax, or (if your prior-year adjusted gross income was over $150,000) 110% of last year’s tax, whichever is less. For a high earner, last year’s number is usually the cleaner target, because you already know it.

There are two ways to cover the shortfall, and the IRS does not treat them the same. We lay both out in two ways to cover an RSU tax shortfall. The short version is that timing matters, and one path buys you room the other does not.

Keep in mind the price of admission here. The estimated payment is cash out the door in the quarter you lost your paycheck. That is the real tension, and it is why the size of the payment matters as much as the decision to make one.

How it gets withheld versus what you owe

Withholding rates from IRS Publication 15 (2026). Safe-harbor thresholds from the IRS Underpayment of Estimated Tax by Individuals Penalty page.

Keep the rollover in its own lane

Your 401(k) rollover is a separate decision with its own clock, and a prior post covers those clocks. This piece is not about that. The point is that the rollover and the withholding gap are two different problems, and one person should look at both so neither gets solved in isolation.

The rollover will get its own attention. The withholding gap will not fix itself, and the only window to act on it closes with the calendar year. If you want a second set of eyes on the stack before December, that is what a complimentary conversation is for. We keep the mandatory equity path mapped on equity compensation at separation.

What does your prior-year tax number look like next to this year’s severance and vest?

FAQ

What happens to my unvested and vested RSUs if I am laid off?

Depends on your plan document, not a general rule. Vested shares, unvested shares, and any acceleration are governed by the terms, and the terms vary. Check your plan document first, and we map the mandatory path on equity compensation at separation.

I got a large severance. How is it taxed, and why might too little be withheld?

Severance is supplemental wages, withheld at a flat 22% (IRS Publication 15, 2026). Your marginal bracket as a high earner sits above that. So the 22% does its job and still leaves a gap you owe the following April.

Should I make a fourth-quarter estimated tax payment after a layoff?

Often yes, sized to a safe harbor rather than a guess. Pay at least 90% of this year’s tax, or 110% of last year’s if your prior-year AGI was over $150,000, whichever is less (IRS). Last year’s number is usually the cleaner target.

Severance and my final RSUs hit the same year. Is that a problem?

It can be. Two income events in one calendar year stack into your top brackets, and each was withheld at 22% in isolation. That is the mechanism behind the April bill. The fix is the estimated payment, not a change to the withholding.

Can I just roll my 401(k) and deal with taxes in April?

You can roll the 401(k), but that is a separate decision with its own clock. The withholding gap is not the rollover problem. One person should look at both, so neither gets solved alone.