RSU Taxes in the US: How Vesting, Selling, and Withholding Work

How Are RSUs Taxed in the US?

Quick answer: how are rsus taxed in the United States? In two steps. First, at vesting, the IRS treats the shares as wages: the full vest-date value is ordinary income reported on your W-2. Second, when you sell, any change in price after vesting is a capital gain or loss. There is no tax when RSUs are granted, because unvested units are only a promise of future shares.

A restricted stock unit (RSU) is a promise from your employer to deliver company stock after you meet vesting conditions, usually staying employed for a set period. Unlike stock options, you never pay an exercise price. The trade-off is that taxation is unavoidable at vest: you cannot defer the ordinary-income event the way you can by choosing when to exercise an option.

This two-step pattern drives every planning decision on this page. The vest event determines your wage income, your withholding, and your cost basis. The sale event determines only the tax on post-vest appreciation. Confusing the two is the source of almost every RSU tax mistake, including the classic error of paying tax twice on the same dollars, which we cover below.

Note on scope: this guide covers US federal taxation under IRS rules. Other countries tax RSUs very differently, so if you work abroad or recently moved, confirm your country-specific rules separately.

How Are RSUs Taxed When Vested?

Quick answer: how are rsus taxed when vested? The fair market value of the shares on the vest date counts as ordinary wage income in that year. It appears on your W-2, is subject to federal, Social Security, and Medicare taxes, and your employer withholds tax before you receive the shares.

Suppose 100 RSUs vest when the stock closes at $50. Your employer reports $5,000 of additional wages on your W-2 Box 1 for that year, exactly as if you had received a $5,000 cash bonus. Social Security tax (6.2% up to the annual wage base) and Medicare tax (1.45% on all wages, plus the 0.9% Additional Medicare Tax on high earners) also apply, because RSU income is wages for payroll-tax purposes too.

For federal income tax withholding, RSU vest income is a supplemental wage. Under IRS Publication 15 (Circular E) for 2026, employers withhold at a flat 22% on supplemental wages up to $1 million paid during the calendar year, and at 37% on supplemental wages above $1 million. This withholding is only a down payment: your actual tax on the RSU income is calculated at your marginal bracket when you file Form 1040. If your bracket is higher than 22%, you will owe the difference in April; if it is lower, you get the excess back as a refund. Our bonus tax calculator explains the same supplemental-wage mechanics for cash bonuses.

Vesting does not depend on selling. Even if you hold every share and the stock later crashes, the vest-date value remains taxable wages for the vest year. That is why many employees sell at least enough shares to cover the tax bill.

How Are RSUs Taxed When Sold?

Quick answer: how are rsus taxed when sold? Only the difference between the sale price and your cost basis (the vest-date value already taxed as wages) is taxable. A gain held more than one year after vesting qualifies for lower long-term capital gains rates; a gain on shares sold within one year is taxed as a short-term gain at ordinary rates.

Continuing the example: your 100 shares vested at $50, so your cost basis is $5,000. If you later sell at $60, your proceeds are $6,000 and your taxable capital gain is $1,000 — not $6,000. You already paid ordinary income tax on the first $5,000 at vest. The $1,000 of post-vest appreciation is the only amount taxed at sale.

The holding clock for the sale starts on the vest date (technically the day after vesting under the trade-date convention your broker uses). Sell within one year and the gain is short-term, taxed at your ordinary bracket. Hold more than one year and the gain is long-term: for 2026, single filers pay 0% up to $49,450 of taxable income, 15% up to $545,500, and 20% above that, plus a possible 3.8% Net Investment Income Tax at higher incomes. See our capital gains tax rates guide for the full bracket tables, or run the numbers in our capital gains calculator.

Losses work symmetrically. If the stock falls to $40 and you sell, you have a $1,000 capital loss that can offset other capital gains, plus up to $3,000 of ordinary income per year. The vest-year wage income is not retroactively reduced, which is a painful but important asymmetry to understand before holding concentrated RSU positions.

What Is the RSU Tax Rate in 2026?

Quick answer: the rsu tax rate has two layers. Withholding at vest is a flat 22% federal (37% on supplemental wages above $1 million). Your true rate is your marginal income-tax bracket on the vest income, plus 0%, 15%, or 20% on any later sale gain held over a year.

There is no special RSU rate. Vest income stacks on top of your salary and is taxed through the regular 2026 federal brackets for single filers: 10% to $12,400, 12% to $50,400, 22% to $105,700, 24% to $201,775, 32% to $256,225, 35% to $640,600, and 37% above (per IRS Revenue Procedure 2025-32). The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. Our tax brackets page has the complete tables for every filing status.

That stacking effect surprises many employees. A $5,000 vest will not move most earners into a new bracket, but a $150,000 annual vest at a large technology company easily can. Each extra dollar of RSU income is taxed at your top marginal rate, which is often 24% or 32% for RSU-heavy earners — noticeably above the 22% withheld. Budget for the shortfall or increase withholding rather than waiting for an April surprise.

State taxes add a third layer in most states. California, New York, and New Jersey, where RSU earners concentrate, tax the vest income as ordinary wages at state rates, and tax capital gains as ordinary income too. Only the federal system offers the preferential long-term rate.

RSU Sell to Cover Taxes: How It Works

Quick answer: rsu sell to cover taxes means your employer automatically sells just enough of your newly vested shares to pay the required withholding, then deposits the remaining net shares in your brokerage account. You never handle the cash; the sale appears on your 1099-B.

Walk through the mechanics with our standard example. 100 shares vest at $50 ($5,000 of wages). At 22% federal withholding plus roughly 7.65% FICA and any state withholding, the employer must remit around $1,500–$1,800 to the tax agencies. Under sell-to-cover, the broker liquidates about 30–36 shares at the market price on the vest date and sends the cash to the IRS and state. You keep roughly 64–70 shares. The fractional-share sale is the line item that confuses TurboTax users on forums every February: a small 1099-B appears for the cover sale even if you never placed a trade yourself.

Employers typically offer three settlement choices: sell-to-cover (the default at most public companies), same-day sale (liquidate everything, take the cash), and cash or net-share withholding (you pay the withholding from salary or savings and keep all shares). Sell-to-cover is usually the best default because it prevents an out-of-pocket cash crunch while keeping your remaining position intact. Just remember the cover sale is itself a reportable sale with a tiny gain or loss if the execution price differs from the vest FMV by pennies.

One warning: sell-to-cover only satisfies the withholding, not necessarily your full tax. If your marginal rate is 32% but only 22% was withheld, the remaining 10% comes out of your refund or April payment. High earners should model this gap every vest quarter.

RSU Tax Calculator: Worked Example

Quick answer: this rsu tax calculator example uses 100 RSUs vesting at $50 ($5,000 of ordinary income, $1,100 withheld at 22%), sold later at $60 for a $1,000 gain taxed at 15% ($150). Total federal tax across both events: $1,250 on $6,000 of proceeds.

Here is the full arithmetic, verified step by step:

• Vest event: 100 shares x $50 FMV = $5,000 of ordinary wage income, added to W-2 Box 1.
• Withholding at vest: $5,000 x 22% = $1,100 federal withholding remitted by the employer (sell-to-cover liquidates about 22 shares at $50).
• Cost basis: $5,000 total, or $50 per share — the amount already taxed as wages.
• Sale event: 100 shares x $60 = $6,000 proceeds minus $5,000 basis = $1,000 capital gain.
• Tax on gain (long-term, 15%): $1,000 x 15% = $150.
• Net proceeds: $6,000 minus $150 = $5,850 (the $1,100 withholding was already credited against the vest-year return, not deducted again here).

Try your own numbers in the rsu tax calculator at the top of this page. Change the sale price to $45 to see a $500 capital loss, or shorten the holding period and apply your marginal rate to see short-term treatment. If your vest income pushes total supplemental wages above $1 million in a calendar year, rerun the withholding at 37% on the excess.

For employees with large grants, repeat this calculation per vesting tranche rather than averaging prices across the year. Each tranche has its own vest FMV, its own basis, and its own one-year holding clock, which matters when lots were acquired months apart.

ISO vs NSO Taxes vs RSUs: Comparison Table for US Employees

Quick answer: iso vs nso taxes differ from RSU taxes in timing and choice. RSUs always produce wage income at vest. NSOs produce wage income at exercise. ISOs can avoid wage income entirely if strict holding periods are met, but may trigger alternative minimum tax at exercise.

Employees who switch employers often hold a mix of all three equity types, so the comparison matters. RSUs are the simplest: taxable wages at vest, no decisions required. Non-qualified stock options (NSOs) shift the wage event to the day you exercise: the spread between the market price and your strike price is ordinary income, and later appreciation is capital gain. Incentive stock options (ISOs) are the most complex: no regular income tax at exercise if you hold the shares at least two years after grant and one year after exercise (a qualifying disposition), but the exercise spread counts as income for alternative minimum tax purposes in the exercise year.

The practical takeaway: if you hold ISOs, model the AMT before exercising, because the alternative minimum tax can create a large bill on paper gains you have not cashed out. RSU holders never face AMT on their units, which is one reason private companies shifting from options to RSUs simplify life for rank-and-file employees. Readers with ISOs should also review our alternative minimum tax guide.

Cost Basis: The Double-Counting Mistake to Avoid

Quick answer: your RSU cost basis is the vest-date fair market value already reported as wages. Some brokers report $0 or omit the basis on Form 1099-B, so you must manually enter the correct basis on Form 8949 — otherwise you pay tax twice on the same income.

This is the most expensive and most common RSU reporting error. Your W-2 already includes the $5,000 of vest income, and tax was already withheld on it. When the broker issues Form 1099-B for the later sale, the cost-basis box (Box 1e) sometimes shows $0, shows only the cover-sale lot, or is marked as uncovered because the shares came from an employer plan. If you import that form into tax software untouched, the program computes gain as proceeds minus $0 — taxing the full $6,000 sale as a gain on top of the $5,000 of wages. In our example that mistake would tax $11,000 of income on $6,000 of real economic gain.

The fix takes two minutes. On Form 8949, report the sale with code B (basis incorrect) if needed, enter proceeds of $6,000 and basis of $5,000, and keep your vest confirmation or final pay stub showing the $5,000 of RSU wages as your support. Then reconcile: wages on the W-2 plus gains on Schedule D should equal your true economic profit, never more. Taxpayers who discover an old double-count can generally amend with Form 1040-X within three years.

Same-day sales deserve a special note. If shares are sold immediately at vest, proceeds roughly equal basis and the gain rounds to zero — but the sale still must be reported on Form 8949 with the correct basis. Do not skip reporting just because no tax is due; the IRS matches every 1099-B against filed returns, and an unreported sale generates an automated notice.

RSUs on Your W-2, 1099-B, and Tax Return in the US

Quick answer: RSU wages appear in W-2 Box 1 (and state wage boxes), federal withholding appears in Box 2, the sell-to-cover and any later sales appear on Form 1099-B from your broker, and you reconcile everything on Form 8949 and Schedule D.

Trace the paper trail for a single vest-and-hold cycle. In the vest year, your final pay stub shows imputed RSU income, your W-2 Box 1 includes it, Box 2 includes the 22% federal withholding, and Boxes for Social Security and Medicare wages include it as well. Verify these numbers in January with our W-2 calculator before filing.

In the sale year, the broker sends Form 1099-B listing proceeds, sale date, and possibly an incomplete basis. You transfer each sale to Form 8949 (short-term vs long-term lots separated), totals flow to Schedule D, and the resulting gain or loss joins your Form 1040. Keep three documents per tranche indefinitely: the vest confirmation with FMV, the 1099-B, and your filed Form 8949. With those three, any IRS notice about equity compensation can be answered in one letter.

Employees who vest quarterly will have four tranches a year, each with its own basis and holding clock. Spreadsheets beat memory: log vest date, shares, FMV, and sale date per lot. Most brokers offer a supplemental gain-loss report for employee stock plans — download it, since the official 1099-B alone is often insufficient.

State Taxes and Estimated Payments on RSUs

Quick answer: most states tax RSU vest income as ordinary wages and offer no preferential capital-gains rate. Because withholding often lags your true liability, large vest events may require quarterly estimated payments to avoid an underpayment penalty.

State treatment generally follows the federal two-step pattern but without the federal long-term discount: the vest value is wages sourced to the state where you worked on the vest date, and later gains are taxed as ordinary income in most states. Movers face multi-state allocation — if you earned the units in California and vested in Texas, both states may claim a slice, with credits sorting out the overlap. Remote workers should confirm which state the employer treats as the work state on each vest date.

On estimated payments: the IRS safe harbors excuse a penalty if withholding and timely estimates cover at least 90% of the current-year tax or 100% of the prior-year tax (110% at higher incomes). A mid-year RSU windfall can blow past those thresholds fast. After any unusually large vest, annualize your income, compare withholding to the safe harbor, and send Form 1040-ES payments for the remaining quarters if needed.

Strategies to Lower Your RSU Tax Bill

Quick answer: you cannot avoid tax at vest, but you can control the sale: hold past one year for long-term rates, sell in lower-income years, harvest losses against gains, fund pre-tax accounts with the proceeds, and avoid concentration risk that dwarfs any tax saving.

First, decide deliberately whether to hold or sell. Holding concentrates both market risk and job risk in one company; most financial planners suggest selling RSUs at vest and diversifying, accepting that any same-day gain is minimal. If you do hold, calendar the one-year mark per tranche so short-term gains convert to long-term rates of 0%, 15%, or 20% instead of ordinary rates up to 37%.

Second, time sales around income. Selling in a year with lower total income — a sabbatical, a job change, early retirement — can drop a gain from the 20% bracket to 15% or even 0%. Pair gains with harvested losses from other holdings. Third, redirect proceeds into tax-advantaged accounts: max out 401(k), HSA, or 529 contributions to offset the income bump where eligible. Finally, never let tax tail wag the investment dog: holding a falling stock to reach long-term treatment can lose more than the 17-point rate spread saves.

For 2027 and beyond, treat all forward-looking figures as projected: the IRS adjusts brackets, the standard deduction, and capital-gains thresholds for inflation each fall, and Congress can rewrite the underlying rates. Revisit this page after each revenue procedure to confirm the current numbers before making sale decisions.