Introduction
RSUs are taxed as ordinary income on the day they vest, based on the share price that day. When you later sell, only the change in price after vesting is a capital gain or loss. The catch: your employer usually withholds federal tax at a flat 22%, while senior earners often owe 32% to 37% on that income, so if your personal tax rate is doesn't match, the bill for the difference shows up in April.
Their taxation at vest opens up strategic planning opportunities for thoughtful investors who plan ahead.
How are RSUs taxed? Two moments, two kinds of tax
If you want the basics of what an RSU is, start with our guide, What Are Restricted Stock Units? This post is about their taxation and tax planning opportunites.
RSU tax happens at two separate moments.
1. At vest: ordinary income. The day your shares vest, their full value counts as wages. Ten thousand shares vesting at $40 is $400,000 of income, the same as a $400,000 bonus. It shows up on your W-2 and is subject to federal income tax, Social Security (up to the annual wage cap), Medicare, and state income tax (3.99% for North Carolina in 2026).
Remember, you owe that tax whether you sell the shares or not. It's this point that opens up good strategic planning opportunities.
2. At sale: capital gain or loss. Your cost basis is the share price on the vest date. If you sell later at a higher price, the difference is a capital gain. Hold more than one year after vesting and it is a long-term gain, taxed at lower rates. Sell within a year and it is short-term, taxed like wages.
Moment | What's taxed | Type of tax |
|---|---|---|
Vest | Full share value that day | Ordinary income, payroll taxes, state income tax |
Sale | Price change since vest | Capital gain or loss (long-term after 1 year) |
Are RSUs taxed twice? No. The vest-date value is taxed once as income, and that value becomes your basis. Only growth after vesting is taxed again at sale.
Sidebar: One of the most common issues for RSUs at tax filing is a 1099 mistakenly reporting the shares at a $0 basis which leads to the entire dollar amount incorrectly reported as taxable gain if it isn't caught.
The year-end withholding trap
When RSUs vest, your employer withholds taxes on the amount the same way it would a bonus. The IRS lets employers withhold federal tax on bonuses at a flat 22%, up to $1 million of bonus-type pay in a year. Above $1 million, it jumps to 37%.
Twenty-two percent is a withholding rate, not your tax rate. For 2026, a married couple pays 32% on taxable income over $403,550, 35% over $512,450, and 37% over $768,700. If your salary already puts you near those lines, every vested share lands there too. The 22% withheld falls short, and nobody tells you until you file.
A worked example (hypothetical figures for illustration)
A VP at a Triangle tech company, married filing jointly, earns a $350,000 salary. In 2026, $400,000 of RSUs vest. Payroll withholds 22% on the vests.
Amount | |
|---|---|
Federal tax actually owed on the $400,000 of RSU incomThe year-end withholding trape | about $127,300 |
Federal tax withheld at 22% | $88,000 |
Gap due in April | about $39,300 |
Her RSU income is taxed at an average of about 32%, not 22%, because it stacks on top of her salary and climbs through the 24%, 32%, and 35% brackets. If her withholding and estimated payments also fall short of the IRS safe harbor, she owes an underpayment penalty on top.
In some cases, the state side is close, (IE North Carolina taxes everyone at one flat rate). The gap is federal.
How to spot the gap before April
You can check this yourself in about 20 minutes.
Add up every vest this year, including any still scheduled before December 31. Your vesting schedule in your stock plan account has the dates.
Add your salary, bonus, and any other income to estimate taxable income.
Find your top bracket. If it is 24% or lower, 22% withholding is close. If it is 32% or higher, you are almost certainly short.
Compare total federal tax withheld so far (your last pay stub and your stock plan's tax records) with the tax you will owe.
Check the safe harbor. With income over $150,000, you may avoid the penalty if total withholding and estimates cover at least 110% of last year's tax, or 90% of this year's.
Double-trigger RSUs
Most private companies, and some recently public ones, grant double-trigger RSUs. They need two things before they count as vested: the time-based schedule (trigger one) and a liquidity event such as an IPO or acquisition (trigger two).
No tax is due until both triggers hit. That sounds like good news, and it is, until the second trigger lands and several years of vesting count as income in a single year. An IPO can turn four years of grants into one W-2, almost all of it in the 35% or 37% bracket, with withholding still starting at 22% until you pass $1 million.
If your company is heading toward a deal or a listing, the planning starts before the event: estimating the income, setting cash aside for the tax, and deciding how many shares to sell once the lockup ends.
When to sell RSUs: sell or hold at vest
Here's a valuable question to ask when your RSUs vest: if your company paid this bonus in cash, would you use it to buy company stock?
That is exactly what holding vested RSUs is. You have already paid income tax on the full value. Selling on the vest date usually creates little or no extra tax, because the price has barely moved from your basis. So the tax cost of selling right away is close to zero, and the decision is really about risk.
Reasons to sell at vest:
Your salary, bonus, and future grants already depend on the same company.
Company stock is more than 10% to 20% of your net worth.
You need cash for the tax gap above, a house, or other goals.
Reasons to hold some:
You have a clear, sized conviction in the company and can afford for it to fall.
You want long-term rates on future growth and can wait a year.
The position is small next to everything else you own.
Many people fail to do either one on purpose. They let shares pile up one vest at a time and wake up years later with a concentrated position and a low-basis tax problem. A simple rule, such as selling every vest except a set percentage, prevents that.
When I talk to people who have built a concentrated stock position who wonder if they should keep adding to that position with future RSUs or sell immediately at vest to diversify I like to ask: "How would you know if you had already won?"
This question lets us put real numbers to what a family needs to be financially free in relation to their goals so we can know when it might make sense to begin to take less risk. Read More: How to Plan for a Concentrated Stock Position
Five RSU tax moves to consider before December 31
Run a tax projection now. It takes the guesswork out of everything below. November is the last comfortable month to do it.
Raise your W-4 withholding for the rest of the year. The IRS treats paycheck withholding as if it were paid evenly all year, so extra withholding in November and December can cover gaps that have happened this year. Some stock plans also let you choose a higher withholding rate on future vests. Ask or check your benefits portal.
Make a fourth-quarter estimated payment. If your paychecks can't close the gap, a federal estimated payment due January 15, 2027 can.
Give shares instead of cash. If you give to charity, donating company shares you have held more than a year avoids the capital gain and still earns the deduction. Shares held a year or less only deduct at your cost basis. Read More: Donating Appreciated Company Stock Before December 31.
Pair gains with losses. If you sell shares that have grown since vesting, losses elsewhere in your portfolio can offset the gain.
When RSUs become a concentration problem
The tax gap is a one-year problem. The bigger risk builds slowly: shares you never sold, all tied to the company that pays your salary. By the time it feels like a problem, the gain is large enough that selling feels expensive.
That is a planning problem, not a stock-picking one, and it has several answers beyond "sell it all." We walk through them on our Concentrated Stock Planning page.
If RSUs are a big part of your pay and you aren't sure your withholding is keeping up, bring your vesting schedule and last year's return. We'll show you where you stand before April does. Schedule a call.
FAQ
Do you pay taxes on RSUs when they vest or when you sell? Both, on different amounts. The full value at vest is taxed as ordinary income. When you sell, only the change in price since vesting is taxed, as a capital gain or loss.
Why do I owe taxes on my RSUs if taxes were withheld? Employers usually withhold federal tax at a flat 22% on vests. If your income puts you in the 32%, 35% or 37% bracket, the 22% doesn't cover it, and the difference is due when you file.
What is the RSU tax rate? There isn't a separate one. Vested RSUs are taxed at your ordinary income tax rate, which for senior earners is often 32% to 37% federal, plus payroll taxes and North Carolina's flat 3.99% for 2026.
Should I sell my RSUs as soon as they vest? Often, yes. Selling at vest usually adds little tax, because your basis is the vest-date price. Holding is the same as choosing to buy your employer's stock with a cash bonus, so hold only what you would buy on purpose.
What is a double-trigger RSU? An RSU that vests only after both a time requirement and a liquidity event, such as an IPO or acquisition. No tax is due until both happen, which can push years of grants into one tax year.
How do I avoid an underpayment penalty on RSUs? With income over $150,000, make sure withholding and estimated payments cover at least 110% of last year's tax or 90% of this year's. Extra withholding late in the year counts as if it were paid evenly all year.
