RSU Taxes: Vest, Withholding, Basis and Selling

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: RSUs are taxed as wages when they vest, at the shares’ market value. Employers usually withhold 22%, which is often too little. Your basis is the vest value, but brokers often report zero, so fix it on Form 8949. Selling at vest adds little tax and cuts concentration risk.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The tax code is 4 million words long, and restricted stock units manage to trigger about half of them in a single vest. One morning your brokerage account shows new shares, your paycheck shows a giant number, and your W-2 later shows income you never saw as cash. Then you sell, your 1099-B claims your cost basis is zero, and your tax software cheerfully tries to tax you twice.

This guide covers how RSUs are taxed at vest and at sale, why 22% withholding often falls short, the cost-basis trap, the hold-or-sell decision, and how to plan around concentration. Figures are for 2026 unless noted.

CPA Warning Label: Never enter an RSU sale with zero basis without checking the vest-date value. Doing so can tax the same income twice, and the IRS will not flag it for you.

How RSUs are taxed at vest

An RSU is a promise to deliver shares later, usually on a vesting schedule. Nothing is taxable at grant. At vest, the fair market value of the shares delivered is ordinary wage income, just like salary. It appears in box 1 of your W-2, and Social Security and Medicare apply (Social Security only up to the 2026 wage base of $184,500).

The section 83(b) election, which lets holders of restricted stock pay tax at grant, is not available for RSUs because no property is transferred at grant. If someone suggests filing an 83(b) for RSUs, they are thinking of a different instrument.

Some private companies offer RSUs with double-trigger vesting, where tax is not due until both service vesting and a liquidity event occur. Once both triggers hit, the same wage rules apply.

The withholding gap

Employers usually withhold on RSU income using the 22% flat supplemental rate (37% for supplemental wages over $1 million in the year), commonly by selling or holding back shares ("sell to cover" or "net settlement").

If your marginal bracket is 32%, 35% or 37%, 22% leaves a hole. Example: $100,000 of vested shares for someone in the 35% bracket, withheld at 22%, leaves about $13,000 of federal tax uncollected. Plus state tax gaps.

Fixes:

• Ask whether your plan allows a higher withholding election on RSUs. Many now do.
• Increase W-4 withholding on your regular pay. Withholding is credited evenly over the year for penalty purposes.
• Make quarterly estimated payments.
• Sell some vested shares and set the cash aside. Boring, effective.

See how bonuses are taxed for the same supplemental wage mechanics.

Cost basis: the double-tax trap

Your cost basis in vested RSU shares equals the value you were taxed on at vest. You already paid ordinary income tax on that amount through your W-2.

The trap: brokers often report a basis of zero, or leave it blank, on Form 1099-B for shares from equity compensation. Since 2014 brokers are not required to include the compensation element in reported basis for these shares. If you enter the 1099-B as is, your software calculates gain on the full sale price and you pay tax on the same income twice.

The fix: report the sale on Form 8949 with the correct basis and an adjustment code (code B, basis reported incorrectly). Your plan administrator usually has a supplemental statement showing the vest-date value. Download it every year; it is your evidence.

This is one of the most common and expensive DIY tax mistakes. If you sold RSU shares in prior years and paid tax on zero basis, you can generally amend for up to three years from the original filing date to claim the refund.

Hold or sell after vest

After vest, holding RSU shares is economically the same as getting a cash bonus and buying your employer's stock with it. Ask yourself whether you would do that. Most people would not.

• Sell immediately: little or no additional gain, so little or no additional tax. The vest is the taxable event; the sale just converts shares to cash.
• Hold more than one year from vest: any further gain is long-term capital gain at 0%, 15% or 20%, plus 3.8% NIIT above $250,000 MAGI married filing jointly ($200,000 single).
• Hold one year or less: gain is short-term, taxed at ordinary rates.
• Loss: if the price falls after vest, you have a capital loss, limited to $3,000 a year against ordinary income after offsetting gains. See the $3,000 capital loss limit.

Wash sale warning: if you sell company shares at a loss within 30 days before or after a new RSU vest, the vest counts as a purchase and part of the loss can be disallowed. With quarterly vests, that window is surprisingly easy to hit.

Illustration: a four-year grant

Illustration: a married engineer receives 400 RSUs vesting 100 per year. Their household is in the 24% bracket before vesting.

Total wage income: $65,000, and withholding falls $3,300 short over four years. Suppose the engineer held all 400 shares and sells them at $210 in year 5, more than a year after the last vest. Proceeds: $84,000. Basis: $65,000. Long-term gain: $19,000, taxed at 15% = $2,850.

If the 1099-B shows zero basis and nobody fixes it, the software taxes $84,000 of gain instead of $19,000. At 15%, that is $9,750 of extra tax on income already taxed as wages.

Assumptions: shares net-settled for withholding are ignored for simplicity; no state tax; bracket unchanged.

Leaving the company, moving states, and other wrinkles

RSU taxes get messier when life changes mid-schedule.

• Leaving your job. Unvested RSUs are usually forfeited, which has no tax effect because nothing was taxed yet. Vested shares stay yours. Some companies accelerate vesting on layoffs or acquisitions, which can stack several vests into one tax year and push you into a higher bracket.
• Moving states. States often source RSU income by the days you worked in each state between grant and vest. Move from California to Texas mid-schedule and California may still tax a slice of later vests. Expect a nonresident return. See state income tax planning.
• Working abroad. Similar allocation rules apply across countries, and foreign tax credits may come into play.
• Acquisitions. If your company is bought, RSUs may convert into the acquirer's units or be cashed out. A cash-out is wages when paid.
• Blackout periods. Insider trading windows can stop you from selling at vest. Consider a pre-arranged 10b5-1 trading plan if you are frequently restricted.

For high-earning years in general, the high earner tax planning guide covers bunching deductions, retirement accounts and the NIIT in more depth. Many RSU holders sit right in the income band where those moves matter most, and a vest-heavy year is the time to use them.

Concentration, charity and bigger-picture planning

• Diversify on a schedule. A common rule of thumb is keeping any single stock below 10% of your net worth. Selling right at vest costs essentially nothing in extra tax.
• Max pre-tax savings. RSU years are high-income years. Max the 401(k) ($24,500 in 2026) and HSA ($4,400 / $8,750) to offset some of the vest income.
• Give appreciated shares. Donating long-term appreciated shares to charity or a donor-advised fund avoids the gain and gives a fair-value deduction if you itemize, within AGI limits. From 2026 there is a 0.5% of AGI floor on itemized charity.
• Medicare surcharges. Large vests near retirement can raise IRMAA premiums two years later. See IRMAA planning.
• Estate and property. See estate planning basics and the real estate tax checklist if you plan to use vest proceeds for a home.

More: employee stock RSU guide, capital gains tax planning, ESPP taxes, and the tax planning hub.