How RSUs are taxed

What is taxed at vest

A restricted stock unit is a promise to give you shares later. The grant itself is not taxed. Under IRS guidance the taxable event generally comes at vesting, when the shares are delivered to you. The fair market value of those shares on that day is ordinary wage income. It appears on your W-2 with your salary and is taxed at the same rates.

Social Security and Medicare apply too. Social Security takes 6.2% of wages up to $184,500 in 2026, Medicare takes 1.45% of all wages, and employers withhold another 0.9% Additional Medicare tax once your wages from them pass $200,000 in the year. Strictly, payroll taxes are due when the units vest and income tax when the shares are delivered; for most awards that is the same day.

Here is one vest of 250 shares at $150 ($37,500) in March 2026, for a single filer earning $180,000 plus a $20,000 bonus:

Federal withholding at the 22% flat rate for supplemental wages. Assumes California's optional 10.23% rate for bonuses and stock options paid separately; California also takes SDI.

By the September vest this person's wages for the year have passed $184,500, so Social Security stops, and have also passed $200,000, so the Additional Medicare tax starts: $337.50 on that vest.

Why 22% often falls short

RSU income is supplemental wages, like a bonus. The IRS lets employers withhold a flat 22% on supplemental wages (if they withheld income tax from your regular pay this year or last), and most do. Once your supplemental wages from one employer group pass $1,000,000 in a calendar year, 37% is mandatory on the excess: $1,500,000 of RSU income has $405,000 withheld.

The flat rate ignores your bracket. Here is $100,000 of RSUs for a single filer in Texas, which has no state income tax:

Federal tax with the RSUs minus without them, from full 2026 returns with the standard deduction. Both columns include the 0.9% Additional Medicare tax where it applies.

Even at $80,000, part of the RSU income lands above the 22% bracket. The gap grows with income and is not a penalty, just tax that was not prepaid. The same thing happens with cash bonuses; see how bonuses are taxed.

How shares pay the withholding

Most plans cover the tax with shares rather than cash. Under share withholding (net settlement), the company keeps enough shares and pays the tax itself; under sell-to-cover, a broker sells shares on the market for the same purpose. Some plans let you pay cash instead.

Plans usually round the shares withheld up to a whole share. That is plan practice, not tax law. In the California vest above, $15,442.50 of withholding at $150 a share is 102.95 shares, so 103 are held back and 147 land in your account. Under share withholding, the $7.50 from rounding is typically added to your federal withholding; under sell-to-cover, leftover cash from the sale usually comes back to you. Your W-2 still shows the full $37,500 as wages, because the withheld shares were part of your pay.

Fixing a shortfall

For the California filer above, federal withholding on the year's four vests falls about $16,575 short. California's 10.23% rate, by contrast, withholds about $1,237 more than the state tax the RSUs add. Two ways to close the federal gap:

• Extra withholding on Form W-4, step 4(c). Spread over all 26 paychecks from January, the gap is about $637.51 a check. Starting in mid-October with 6 paychecks left, it is about $2,762.54 a check. See how to adjust your W-4.
• Estimated tax payments to the IRS, made by the quarterly due dates.

Withholding has an advantage for penalties: the IRS treats it as paid evenly through the year unless you choose otherwise, so extra withholding in the fall can cover a shortfall from a spring vest. Estimated payments count only when paid. You generally avoid an underpayment penalty if withholding and timely payments cover 90% of this year's tax or 100% of last year's (110% if last year's adjusted gross income was over $150,000), or if you owe less than $1,000. The income tax calculator shows your full-year picture.

When you sell

Your cost basis is the value at vest, the amount already taxed as wages. Only the change after vest is a capital gain or loss. The holding period starts the day after the shares are delivered: one year or less is short term (taxed at ordinary income rates), more than a year is long term (lower rates).

Say the 250 shares from one vest rise 20% to $180, for a $7,500 gain, and the seller is a single California filer with $200,000 of other income:

Federal figures include the 3.8% net investment income tax, which applies once modified adjusted gross income passes $200,000 for a single filer. California taxes all gains as ordinary income.

The 1099-B basis problem

Shares from an employer award are usually "noncovered" securities, so the broker does not have to report their basis to the IRS. Your 1099-B may show the basis as blank, zero, or too low. Reported as zero, the 250-share sale above becomes a $45,000 gain instead of $7,500: the $37,500 already taxed on your W-2 is taxed again, about $10,538 of extra federal and California tax on a long-term sale.

The fix is on Form 8949. If the 1099-B shows a basis that is wrong, enter code B in column (f), the reported basis in column (e) if it was reported to the IRS, and a negative adjustment in column (g): if it reported $0, the adjustment is -$37,500. If no basis is shown, enter the correct basis in column (e). Many brokers post the correct figure in a supplemental statement.

Concentration

Keeping every net share adds up. The California filer receives 614 shares in 2026, worth $92,100; next to $100,000 of other investments, that is 48% in one stock. FINRA notes that some experts recommend no more than 10% of investment assets in a single stock, while saying it cannot set the right figure for any one person.

Other rules worth knowing

• No 83(b) election. The IRS says an 83(b) election cannot be made for RSUs, because no property is transferred at grant. (It is available for restricted stock.)
• Dividend equivalents paid on unvested units are compensation, not dividends, and are taxed like pay.
• California lets employers withhold 10.23% on bonuses and stock options paid separately; RSUs commonly get that rate, though the EDD does not name them, and some employers use 6.6% or the regular tables. If supplemental pay comes with regular wages, California requires withholding on the combined amount. See the California paycheck calculator.
• New York lets employers use an optional 11.7% supplemental rate (or the regular tables), and for New York City residents an optional 4.25% city rate on top; the flat rates apply only if the employer withholds New York tax from regular wages. See the New York income tax calculator.
• Moving states while units vest can split the income between states, usually by workdays from grant to vest. The rules differ by state and are beyond this guide; a tax professional can help.