RSUs are taxed as ordinary income when they vest, based on the stock's fair market value on the vesting date. The income is added to your W-2 and subject to income tax, Social Security, and Medicare taxes.

Is RSU income taxed twice?

No, but it's commonly misunderstood. RSUs are taxed as income at vesting. When you later sell, you're only taxed on the gain (or loss) from the vest date price. If you sell immediately at vesting, there's typically no additional tax.

What is the RSU withholding rate?

The standard supplemental income withholding rate is 22% federal (37% for amounts over $1 million in a year). However, this is often under-withheld for high earners, potentially leaving you with a tax bill.

How can I reduce taxes on RSUs?

Strategies include maximizing 401(k) contributions, charitable donations of appreciated shares, tax-loss harvesting, managing vesting timing if possible, and holding shares for long-term capital gains rates on future appreciation.

What is my cost basis after RSUs vest?

Your cost basis is the fair market value of the shares on the vesting date — the same amount reported as income on your W-2. If you sell for more than that price later, the difference is a capital gain. If you sell for less, it is a capital loss.

Should I sell RSUs immediately or hold them?

Selling immediately locks in the known value, eliminates concentration risk, and produces no additional capital gains tax. Holding longer gives shares a chance to appreciate at the lower long-term capital gains rate, but adds risk since your income and investment are tied to the same company.

RSU Tax Guide: How Restricted Stock Units Are Taxed (2026)

How RSU Taxation Works

Restricted Stock Units (RSUs) are taxed as ordinary income at vesting — not when you receive the grant and not when you sell. The IRS treats the vested value as wages, which means it lands on your W-2, gets hit with FICA taxes, and is subject to your marginal income tax rate. Any additional gain (or loss) after vesting is then treated as a capital gain or loss when you eventually sell.

For most tech and corporate employees, RSU income is one of the largest and least predictable parts of their tax bill because the 22% supplemental withholding rate the company applies is often lower than their actual marginal rate. Understanding the full picture helps you plan quarterly payments, make better decisions about when to sell, and avoid an unwelcome surprise at filing time.

For context on how the capital gains rules apply once you hold and sell shares, see the capital gains tax rates guide and the tax-loss harvesting guide.

RSU Tax Timeline

Event	Tax Implication
Grant date	No tax (you don’t own shares yet)
Vesting date	Taxed as ordinary income
Holding period	No tax (unless dividends paid)
Sale date	Capital gains/loss on change from vest price

Taxation at Vesting

When your RSUs vest, the fair market value (FMV) is reported as W-2 income:

Vesting Example

Factor	Amount
RSUs vesting	100 shares
Stock price at vest	$150/share
Total taxable income	$15,000

This $15,000 is added to your W-2 and taxed as ordinary income.

Taxes Owed at Vesting

Income Component	Tax Type	Rate
RSU income	Federal tax	10-37% (marginal rate)
RSU income	State tax	0-13.3% (varies)
RSU income	Social Security	6.2% (up to $176,100 total wages)
RSU income	Medicare	1.45% (2.35% over $200k)

Total Tax Impact Example

Factor	$50k Salary + $50k RSU	$150k Salary + $50k RSU
RSU income	$50,000	$50,000
Federal tax on RSU	~$6,000 (12% bracket)	~$11,000 (22% bracket)
State tax (6%)	~$3,000	~$3,000
FICA (7.65%)	~$3,825	~$3,825
Total tax on RSU	~$12,825	~$17,825

Withholding at Vesting

Your employer is required to withhold taxes when RSUs vest, but the method and rate used often leave a gap between what was withheld and what you actually owe. The most common method is “sell to cover,” where the company automatically sells a portion of your vesting shares to fund the tax payment. Some employers let you pay cash instead, but that is relatively rare.

The key problem is that the IRS mandates a flat 22% supplemental withholding rate on most bonus and equity compensation, regardless of your actual bracket. If you are in the 32% or 35% bracket, you may be significantly under-withheld every time shares vest.

Standard Withholding Rates

Tax	Supplemental Rate
Federal	22% (flat rate)
Federal (over $1M)	37%
Social Security	6.2%
Medicare	1.45%
State	Varies

Withholding Methods

The method your employer uses determines how many shares you actually end up with. “Sell to cover” and “share withholding” both reduce your net share count — the difference is mainly accounting. Either way, the withheld amount is often only a starting point, not the full tax due.

Method	How It Works
Sell to cover	Company sells enough shares to cover taxes
Share withholding	Company withholds shares equal to tax
Cash payment	You pay taxes from other funds (rare)

Sell-to-Cover Example

Factor	Amount
Shares vesting	100
Stock price	$150
Gross value	$15,000
Federal withholding (22%)	$3,300
FICA (7.65%)	$1,148
State (6%)	$900
Total withholding	$5,348
Shares sold	~36 shares
Net shares received	~64 shares

The Under-Withholding Problem

This is the most common RSU tax trap. High earners often discover in April that they owe thousands of dollars they were not expecting because their employer’s flat 22% withholding rate did not cover their actual marginal rate. The fix is simple once you know the risk exists: increase your W-4 withholding or make quarterly estimated payments throughout the year that RSUs vest.

Why 22% Is Often Not Enough

Your Tax Bracket	Withholding Rate	Shortfall
12%	22%	Overpaid (refund)
22%	22%	About right
24%	22%	Underpaid 2%
32%	22%	Underpaid 10%
35%	22%	Underpaid 13%
37%	22%	Underpaid 15%

Underpayment Example

Factor	Amount
RSU vesting	$100,000
Federal withholding (22%)	$22,000
Actual tax rate (32%)	$32,000
Tax owed at filing	$10,000

Solution: Adjust W-4 withholding or make estimated tax payments.

Taxation When You Sell

Once shares vest, they behave exactly like shares you bought on the open market — your cost basis is the vest-date price, and any change in value from that point is a capital gain or loss. The holding period clock starts on the vest date, not the grant date, so you need to hold shares for more than 12 months after vesting to qualify for long-term capital gains rates.

When you sell RSU shares, you may owe capital gains tax on any appreciation (or realize a loss) from the vesting date:

Holding Period

Holding Period	Tax Treatment
Under 1 year	Short-term capital gains (ordinary income rates)
Over 1 year	Long-term capital gains (0%, 15%, or 20%)

Sale Scenarios

Scenario 1: Sell Immediately at Vesting

Factor	Amount
Vest price	$150
Sale price	$150
Gain/Loss	$0
Additional tax	$0

Scenario 2: Hold and Sell Higher (Long-Term)

Factor	Amount
Vest price (cost basis)	$150
Sale price (1+ year later)	$200
Gain per share	$50
Tax rate (LTCG)	15%
Tax per share	$7.50

Scenario 3: Hold and Stock Drops

Factor	Amount
Vest price (cost basis)	$150
Sale price	$100
Loss per share	($50)
Tax benefit	Can offset gains or $3,000 income

Important: You already paid income tax on the vest price — a stock drop means you paid taxes on money you never received!

RSU Tax Strategies

1. Sell Immediately and Diversify

Pro	Con
Eliminates concentration risk	No opportunity for LTCG
Locks in the known value	May miss future appreciation
Simplest tax situation	–

2. Hold for Long-Term Capital Gains

Pro	Con
Potential for lower tax rate	Concentration risk
More upside potential	Stock could decline
–	Already taxed on vest value

3. Maximize 401(k) to Offset RSU Income

W-2 Income	RSU Income	401(k) Max ($23,500)	Tax Savings
$150,000	$50,000	Reduces AGI by $23,500	~$7,050 (30% bracket)

4. Charitable Donations of Appreciated Shares

If you’ve held shares 1+ year and they’ve appreciated:

Donate shares directly to charity
Deduct full market value
Avoid capital gains tax entirely

5. Tax-Loss Harvesting

If some RSU shares have declined:

Sell depreciated shares to realize loss
Offset other capital gains
Deduct up to $3,000 against ordinary income
Reinvest in similar (not identical) investment

RSU vs. Other Stock Compensation

RSUs are simpler than stock options and less risky because they always have some value as long as the stock is above zero. Options can expire worthless if the stock never rises above the strike price. Employee Stock Purchase Plans (ESPPs) are a third category with their own rules. If your company offers more than one type, understanding the tax treatment of each helps you decide how to hold and when to sell each piece.

Feature	RSU	Stock Options	ESPP
Tax at grant	No	No	No
Tax at vest/exercise	Yes (ordinary income)	Yes (if NSO)	Potentially
Risk of worthless	No	Yes (if stock drops)	No
Upside limited	No	No	Usually capped
Complexity	Low	High	Medium

Common RSU Tax Mistakes

These are the errors that most often result in an unexpected tax bill, a penalty, or an overpayment that did not need to happen.

Mistake 1: Forgetting Estimated Taxes

If withholding is insufficient, make quarterly estimated payments to avoid penalties.

Mistake 2: Wrong Cost Basis on Sale

Your cost basis is the vest date price, not $0. Using the wrong basis means overpaying taxes.

Mistake 3: Over-Concentration

Holding too much company stock is risky — consider your total exposure including job security at the same company.

Mistake 4: Assuming RSUs Are Taxed Twice

Income tax at vesting + capital gains on appreciation ≠ double taxation. The appreciation is new income.

Key Takeaways

RSUs are taxed as ordinary income at vesting — Plan for a significant tax hit
22% withholding is often insufficient — Especially if you’re in a higher bracket
Cost basis is the vest date FMV — Important for calculating gains/losses at sale
Holding 1+ year triggers LTCG rates — But adds concentration risk
Diversification is usually wise — Your job and stock shouldn’t both depend on one company
Max out 401(k) to offset RSU income — Reduces your marginal tax bracket

FICA taxes — Social Security (6.2%) and Medicare (1.45%) — apply to RSU income at vesting on top of income tax; see FICA tax explained for the full rate table and 2026 wage base limits. When standard withholding leaves a gap, quarterly estimated payments prevent underpayment penalties — see estimated tax payments for due dates and how to calculate the right amount. Once shares are held for over a year, gains are taxed at preferential rates — see 2026 capital gains tax rates for the income thresholds. If your RSU shares have declined in value since vesting, the tax-loss harvesting guide and capital loss carryover pages explain how to put those losses to work.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy