RSU taxes, answered.
Restricted stock units are taxed as ordinary compensation on the day they vest, at their full market value, with no special rate and no deferral. Almost everything that confuses people follows from that one fact, and from the gap between what your employer withholds and what you actually owe. Figures below are 2026 amounts.
What is an RSU?
A restricted stock unit is a promise from your employer to give you shares on a future date, provided you are still there. You own nothing until it vests. On the vest date the shares become yours and their full value is taxed as ordinary compensation income, exactly like salary paid in stock.
How are RSUs taxed when they vest?
The full market value of the shares on the vest date is ordinary income, added to your W-2 for that year. There is no special rate and no deferral. Your cost basis becomes that same value, so any later movement in the share price is a separate capital gain or loss when you sell.
Why are RSUs taxed so high?
They are not taxed at a higher rate than salary. They feel higher for two reasons. The value lands in one lump, which can push you into a higher bracket for that year, and the amount withheld is often far less than what you actually owe. The gap shows up the following April.
What withholding rate applies to RSUs?
Employers generally withhold at the flat supplemental wage rate of 22%, rising to 37% once your cumulative supplemental wages pass $1,000,000 in a year. If your marginal rate is above 22%, and for most Bay Area households it is, that withholding is not enough and the shortfall is yours to cover.
What is an RSU offset on my pay stub?
It is an accounting entry, not an extra tax. Your employer adds the full value of the vested shares to your gross pay so it can be taxed, then subtracts the same amount as an offset because you were paid in stock rather than cash. The net effect on your paycheck is the withholding.
What does unvested mean?
Unvested shares are promised but not yet yours. You cannot sell them, they carry no tax consequence yet, and you generally forfeit them if you leave. Only vested shares are actually owned. Counting unvested equity as current net worth is one of the most common planning mistakes we see.
Do I have to sell shares to cover the tax?
Usually your employer sells a portion automatically, known as sell-to-cover, and the rest are deposited to your account. Some plans let you pay the withholding in cash and keep all the shares instead. Either way the tax is owed at vest, so the only real choice is where the money comes from.
Should I sell my RSUs at vest or hold them?
Selling at vest is tax-neutral, because you have already been taxed at that value and there is no gain yet. Holding is a decision to buy more of your employer's stock with after-tax money. Framed that way, the question becomes whether you would buy the shares today at that price.
How can I reduce the tax on my RSUs?
You cannot change the tax at vest, which is fixed. What you can influence is everything around it: filling pre-tax retirement space in high-vest years, timing discretionary income, harvesting losses elsewhere, donating appreciated shares, and on shares you kept, holding more than a year past vest so the gain is taxed at long-term rates rather than as ordinary income. The lever is the surrounding year, not the vest itself.
Can I donate RSU shares to charity?
Yes, and donating shares you have held more than a year that have gained value is generally more efficient than donating cash, because you avoid the capital gain and may deduct the full market value. Donating shares at vest achieves less, since there is no gain yet to avoid.
Can I use tax loss harvesting with RSUs?
Yes, on shares you kept after vesting that have since fallen below your basis. Selling those realizes a loss that offsets other gains. Be careful with the wash sale rule: buying substantially identical stock within 30 days either side, including through a new vest, can disallow the loss.
How does California tax RSUs?
California taxes the vest as ordinary income like the federal system, and it taxes any later capital gain as ordinary income too, with no preferential long-term rate. Rates reach 13.3%. If you leave California before the shares vest, California still taxes the portion attributable to the workdays you spent in the state between grant and vest.
What are the most common RSU mistakes?
Assuming the withholding covered the tax bill. Counting unvested shares as money you have. Letting a single employer's stock quietly grow into most of your net worth. And selling on instinct after a price drop rather than on a schedule set in advance, which is when the worst decisions get made.
How do I keep track of my vesting schedule?
Export the grant detail from your equity portal rather than relying on the summary screen, and record grant date, vest dates, quantity, and the value at each vest. That record is what every later tax and planning decision depends on, and reconstructing it years later is far harder than maintaining it.
Does the 3.8% net investment income tax apply to RSUs?
Not to the vest itself, which is compensation rather than investment income. It can apply to gains on shares you hold and later sell. Above $250,000 of modified adjusted gross income for joint filers, that gain may carry an additional 3.8%. The threshold is not adjusted for inflation.
This is educational information, not individualized tax advice. Consult your own tax professional before acting. Related: the RSU tax and net proceeds estimator, and our general FAQ on working with Austin Creek Capital.
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