← All articles
TAX PLANNING RSU Tax Guide: How Restricted Stock Units Are Taxed 2026-03-04 · 7 min read · rsu · restricted stock units · equity compensation

RSU Tax Guide: How Restricted Stock Units Are Taxed

Tax Planning 2026-03-04 · 7 min read rsu restricted stock units equity compensation tax investing tech salary capital gains

Restricted Stock Units are now a standard part of compensation at tech companies, startups, and many large corporations. But RSU taxes are genuinely confusing — most people understand their salary taxes but have a blind spot around equity.

The good news: RSU taxation is systematic once you understand the rules. The bad news: the rules are specific enough that getting them wrong is expensive.

The Two Tax Events

RSU taxation happens at two distinct points:

  1. Vesting date: You owe ordinary income tax on the fair market value of shares that vest
  2. Sale date: You owe capital gains tax (or can deduct a loss) on any price change after vesting

These are completely separate tax events, even if they happen close together.

Tax at Vesting

When RSUs vest, the IRS treats it exactly like W-2 income. Your employer is required to:

Example:

You owe federal income tax on $5,000 at your marginal rate (22%, 24%, 32%, or 35% depending on your bracket), plus FICA taxes.

Withholding: The Supplemental Rate Problem

Most employers withhold at the federal supplemental rate of 22% on RSU income. The problem: if you're in the 24%, 32%, or 35% bracket, the 22% withholding is not enough.

This is the #1 RSU tax mistake. People assume the withholding handles their tax liability and are shocked by a large bill in April.

Fix: Check your marginal rate. If it's above 22%, make a separate estimated tax payment when your RSUs vest, or adjust your W-4 to over-withhold on your salary to compensate.

You can also ask your employer's equity plan administrator whether they offer "sell-to-cover" (which handles withholding) or "net shares" (where you receive fewer shares but the taxes are withheld from the grant itself).

FICA on RSUs

RSU income is subject to FICA taxes:

If large RSU vesting events push you above these thresholds, the additional Medicare tax applies. This is often not withheld correctly by employers — another reason to verify your withholding.

FICA Cap Planning

If your salary already exceeds the $176,100 Social Security wage base, RSU vesting in the same year doesn't owe Social Security tax (you've already hit the cap). This is a subtle benefit of RSUs late in the calendar year when you've already earned past the FICA cap on your salary.

Your Cost Basis

Your cost basis in vested RSU shares is the fair market value on the vesting date — the same number that appeared as income on your W-2.

This is critical for calculating capital gains. If you vest 100 shares at $50 and they're worth $60 when you sell:

If your broker shows $0 as your cost basis (which happens when they don't receive the information from your employer), the gain will be overstated on your tax return. Always verify your cost basis before filing, and correct it if necessary.

Capital Gains After Vesting

After shares vest, any price movement becomes a capital gains event:

Holding period Tax treatment
Sold same day as vest No capital gain/loss (short-term with zero days)
Sold < 1 year after vest Short-term capital gain — taxed as ordinary income
Sold ≥ 1 year after vest Long-term capital gain — 0%, 15%, or 20% depending on income

The long-term vs. short-term distinction is significant. If you're in the 32% ordinary income bracket, holding RSUs for a full year after vesting saves 12-17 percentage points on capital gains.

The Sell-Immediately Strategy

Many financial advisors recommend selling RSUs immediately when they vest (or very shortly after). The reasoning:

  1. You've already paid income tax on the full value
  2. You now own a concentrated position in your employer's stock
  3. Your employment and your investment are both tied to the same company
  4. Selling immediately and diversifying eliminates the additional company-specific risk

The counterargument is that long-term capital gains treatment (if you hold a year) can save substantial taxes on appreciated shares. This is a real consideration but requires holding concentrated employer stock, which has meaningful risk.

A common middle path: sell enough to cover the tax bill immediately, hold the rest for long-term treatment, but set a maximum concentration limit (e.g., don't let employer stock exceed 10-15% of net worth).

State Taxes

State income tax treatment of RSUs generally follows federal treatment — vest value is ordinary income, gains are capital gains. But some states have specific rules:

California: RSU income may be partially allocable to California even if you've moved out of state, based on when the services were performed during the vesting period. This "apportionment" issue catches many people who relocate between vesting and receipt.

Washington, Texas, Florida (no income tax): If you live in a no-income-tax state, you avoid state income tax on RSU vesting entirely.

Multi-state vesting periods: If you worked in multiple states during the vesting period, multiple states may claim a portion of the RSU income. This can require filing multiple state returns.

AMT and RSUs

Regular RSUs (as opposed to ISOs — Incentive Stock Options) do not trigger the Alternative Minimum Tax. RSU income is ordinary income, and the AMT is calculated on preference items, not ordinary income. RSUs and AMT only interact if you have significant other AMT adjustments.

If you're also holding ISOs (Incentive Stock Options), that's a different calculation — but pure RSU holders don't need to worry about AMT.

ESPP vs. RSU Taxes

If you have both RSUs and an Employee Stock Purchase Plan:

RSUs: Tax at vest (ordinary income), capital gains or loss at sale ESPP: The discount at purchase may be ordinary income; gains above the discount may qualify as capital gains (if qualifying disposition)

These are separate calculations with different rules. Don't conflate them.

Practical Tax Workflow for RSU Holders

When RSUs vest:

  1. Note the vest date and price per share (check your brokerage or equity platform)
  2. Verify the income appears on your pay stub and matches the vest value
  3. Check whether your withholding covered your actual marginal rate — if not, make an estimated payment
  4. Record your cost basis: [shares vested] × [price on vest date]

When you sell:

  1. Identify the vest date and cost basis for the shares you're selling
  2. Calculate whether it's short-term or long-term (vest date to sale date ≥ 1 year?)
  3. Report capital gain/loss on Schedule D

At tax time:

  1. Verify your W-2 Box 1 includes the vested RSU income
  2. Verify your cost basis at your broker matches the vest price (not $0 or the current price)
  3. If you have multiple vest dates at different prices, track each lot separately

Software and Tools

Tax software like TurboTax and H&R Block handles RSUs reasonably well, but they rely on you entering the correct cost basis. If your 1099-B shows $0 basis, you need to correct it by entering your actual basis from the vest date.

Equity tracking services: Platforms like Carta, E*TRADE (Morgan Stanley), Fidelity, and Schwab often show vest history with dates and prices. Download this history at tax time.

Spreadsheet tracking: A simple spreadsheet with [vest date, shares, price, cost basis] per lot is sufficient for most individual investors.

Common Mistakes

1. Not adjusting withholding: The 22% supplemental withholding rate often undercollects. Verify against your actual marginal rate.

2. Treating vested shares as "house money": RSU income is real compensation. Vested shares are your money — treat them like any investment.

3. Forgetting adjusted cost basis: If you report the sale without your vested cost basis, you'll double-pay taxes (once as income at vest, once as phantom gain at sale).

4. Ignoring state allocation: If you've relocated, check whether your previous state can still claim income from RSUs that vested before you moved.

5. Concentrating too much in employer stock: Holding all vested RSUs long-term creates concentration risk. Diversification matters more than the marginal tax savings.

Summary

RSU tax in one paragraph: When shares vest, you owe ordinary income tax on the value — this is automatic and should appear on your W-2, but the withholding may be insufficient. Your cost basis going forward is the vest-date value. When you sell, you owe short-term capital gains (ordinary income rates) if you've held less than a year, or long-term rates (15-20%) if you've held a year or more. Verify your cost basis at your broker before filing — wrong basis is the most common RSU tax error.

The tax rules are mechanical once you understand them. The harder question is how much employer stock to hold — that's a portfolio concentration question, not a tax question.