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.

RSU Tax Guide: How Restricted Stock Units Are Taxed (2025)

How RSU Taxation Works

Restricted Stock Units (RSUs) are a popular form of equity compensation. Understanding the tax implications helps you plan effectively and avoid surprises.

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

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

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

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

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

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

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

Sources

Social Security Administration. “Benefits and Eligibility Information.” ssa.gov/benefits
Centers for Medicare & Medicaid Services. “Medicare Program Information.” medicare.gov

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