How Are RSUs Taxed?
If you happen to perceive what RSUs are and how the grant-vest-sale lifecycle works, the subsequent query is the one that truly prices cash in the event you get it improper: how are they taxed?
The brief reply: RSUs are taxed twice. As soon as as bizarre earnings once they vest, and once more as a capital achieve (or loss) whenever you promote the shares. The primary occasion is computerized. The second is in your management. The planning alternative lives within the hole between the 2.
The First Tax Occasion: Vesting
When your RSUs vest, the truthful market worth of the shares on the vest date is handled as bizarre earnings. It’s added to your W-2 alongside your wage, bonus, and another compensation. There’s no particular price. It’s taxed at your marginal earnings tax price, the identical price that applies to the final greenback of your earned earnings.
For 2026, federal earnings tax brackets for prime earners vary from 32% to 37%, relying on submitting standing and complete taxable earnings. These charges are topic to vary. If you happen to’re receiving significant RSU grants, you’re doubtless in a kind of brackets — which is strictly the place the withholding math begins to diverge from actuality.
Your employer withholds taxes on RSU earnings on the federal supplemental wage price. For 2026, that price is 22% on supplemental wages as much as $1 million, and 37% on supplemental wages exceeding $1 million. These charges are topic to vary. State taxes are withheld individually primarily based in your state’s guidelines.
The withholding price is just not your tax price. It’s a deposit towards your tax legal responsibility. If the deposit doesn’t match what you truly owe, the distinction comes due whenever you file.
The Withholding Hole
That is the perception most executives miss till April.
Take into account a hypothetical state of affairs: knowledgeable incomes $400,000 in base wage plus $200,000 in RSUs vesting in a single yr. Whole W-2 earnings: $600,000. For a single filer in 2026, that places a good portion of earnings within the 35% federal bracket.
The employer withholds at 22% on the RSU earnings (assuming complete supplemental wages are underneath $1 million): $44,000.
The precise federal legal responsibility on that $200,000, given the marginal price: nearer to $66,000–$70,000, relying on deductions and different earnings components.
That’s a spot of roughly $22,000–$26,000 in federal taxes alone — earlier than state taxes. If you happen to’re in a high-tax state, the whole shortfall grows.
This isn’t an error. It’s how supplemental wage withholding works by design. The issue is that many executives don’t see the hole till tax submitting, and by then, the money to cowl it has to come back from someplace — financial savings, portfolio liquidation, or a fee plan.
The repair is simple: map your vesting schedule firstly of every yr, estimate your complete taxable earnings together with all RSU tranches, and make quarterly estimated tax funds to shut the hole earlier than it turns into a shock. An intensive tax plan could account for this earlier than the primary share vests, not after the final one has.
We walked by this withholding hole and the best way to plan for it in additional element on Off the Wall. Watch the episode.
The Second Tax Occasion: Promoting
As soon as your RSUs have vested and also you personal the shares, the tax clock resets. Your value foundation is the truthful market worth on the vest date — the identical quantity that was taxed as bizarre earnings. From that time ahead, any appreciation is a capital achieve. Any decline is a capital loss.
The speed depends upon how lengthy you maintain after vest:
Quick-term capital positive factors (held one yr or much less after vest): Taxed at your bizarre earnings tax price. For 2026, meaning as much as 37% federal for prime earners. There isn’t a preferential price. That is equivalent to how your wage is taxed.
Lengthy-term capital positive factors (held multiple yr after vest): For 2026, the utmost federal long-term capital positive factors price is 20% for taxable earnings above the relevant threshold, plus a possible 3.8% internet funding earnings tax (NIIT) for prime earners, bringing the efficient ceiling to 23.8%. These thresholds are topic to vary.
The differential between short-term and long-term charges is critical. On a hypothetical $50,000 achieve, the distinction between a 37% price and a 23.8% price is $6,600. Whether or not that distinction justifies holding by the extra threat of a concentrated place is a choice that depends upon your full monetary image — not simply the tax math.
Capital Losses and Wash Sale Guidelines
If you happen to promote RSU shares beneath your value foundation (the truthful market worth at vest), the loss is deductible. Capital losses offset capital positive factors greenback for greenback, and for 2026, as much as $3,000 in internet losses can offset bizarre earnings per yr (topic to vary). Remaining losses carry ahead.
One important rule: wash gross sales. If you happen to promote shares at a loss and purchase considerably equivalent securities inside 30 days earlier than or after the sale, the IRS disallows the loss. This issues for RSU holders who additionally take part in an worker inventory buy plan (ESPP) or who obtain new RSU vests whereas promoting older positions. A sale at a loss in March adopted by an ESPP buy of the identical inventory in April can set off a wash sale and wipe out the tax good thing about the loss.
Planning round wash sale home windows is a part of constructing a purposeful promote technique. It’s a mechanical downside, solvable with a calendar and consciousness, however it journeys up executives who handle their RSUs and ESPP participation individually.
Tax Planning Methods to Take into account
A number of approaches could scale back the long-term tax affect of RSU compensation. These are instructional in nature. Particular person applicability depends upon your particular tax scenario and must be mentioned together with your CPA and advisor.
Mapping the vesting schedule yearly. Realizing what’s vesting, when, and at what estimated worth makes complete earnings projectable and may help scale back the April shock.
Making quarterly estimated funds. If withholding is more likely to fall brief (and for prime earners with RSU earnings, it usually does), quarterly funds shut the hole incrementally reasonably than in a single lump.
Evaluating the sell-at-vest strategy. Promoting at vest converts the RSU into money or diversified investments instantly. The capital achieve is zero (foundation equals truthful market worth at vest), so the one tax is the bizarre earnings already withheld. This simplifies the tax image and reduces focus threat. Buyers could take into account this as a default strategy, with exceptions for particular conditions.
Coordinating with different stock-based compensation. When you have inventory choices, ESPP shares, and RSUs, the tax technique could have to account for all three. Exercising ISOs in the identical yr RSUs vest, for instance, can set off AMT implications that change the optimum sequence.
Contemplating tax-loss harvesting within the broader portfolio. If you happen to’re holding RSU shares and plan to promote at a achieve, harvesting losses elsewhere in your portfolio can offset the achieve. Direct indexing methods can generate incremental losses all year long that serve this objective — although wash sale guidelines require coordination throughout all accounts.
When RSU Tax Planning Will get Complicated
RSU taxation is simple in isolation. It will get advanced when layered with different compensation, different earnings sources, and different planning targets.
A profession transition provides a wrinkle: unvested RSUs are usually forfeited, and the remaining vested shares want a promote technique that accounts on your new earnings degree. A yr between roles — with decrease complete earnings — could create a chance to promote RSU shares at a extra favorable capital positive factors price.
A significant liquidity occasion (enterprise sale, inheritance, property sale) in the identical yr as a big RSU vest compresses taxable earnings and might push you into increased brackets or part out deductions. Timing the sale of RSU shares round these occasions is the place the planning creates actual worth.
That is why RSU tax planning isn’t a once-a-year train. It’s a rolling dialog tied to your earnings, your vesting schedule, and no matter else is occurring in your monetary life that yr.
What to Do Subsequent
If you happen to’re receiving RSUs, the tax dimension isn’t elective. It runs yearly, on a schedule you possibly can predict, and the price of not planning for it’s measurable.
The beginning questions: What’s vesting this yr and subsequent? What’s my estimated complete earnings? Is my withholding going to cowl it? And if I promote, when is the suitable time given every part else taking place in my monetary image?
A fee-only fiduciary who understands fairness compensation and tax planning can combine each side of the RSU equation — the funding determination and the tax determination — into a technique that works throughout years, not simply in a single submitting season. Choose to pay attention? We lined what to do when RSUs vest on Between Sips. Stream on Apple Music or Spotify.
In case your RSU tax technique might use a re-examination, that’s a dialog price having. Let’s discuss.