It depends on how the RSU agreements are structured, the company could withhold the 0.4 in income taxes even if the employee expects to hold on to the stock. D

It depends on how the RSU agreements are structured, the company could withhold the 0.4 in income taxes even if the employee expects to hold on to the stock. Don't forget that the company, and not the employee, controls the issuance of shares. This means that the can distribute 1, .6, or 0 (in exchange for $$$) of RSU stock to staff. If they do choose to distribute 1 share , it does spark the question that you raise, but since we are talking withholding income, I don't believe that triggers more income, since you aren't paying more to the employee, instead, you are only covering your responsibility as an employer. Its the company's fault that it didn't withhold, that doesn't mean the employee got paid more. I could see "tax covering" being a problem with the IRS if done when there is certainty with the withholding amount , but in situations where the withholding is unknown and the cash has been used up by the time the tax bill comes due, the company is on the hook and there isn't any extra ordinary income. Companies do send bill to staff to try to recover the shortfall sometimes for this reason.