The two taxable moments
1. Settlement (usually at vest)
When your RSUs settle, the company delivers shares. The full market value on that day is ordinary income, taxed exactly like your salary:
- federal income tax at your normal rate (up to 37%)
- Social Security (6.2%) until you pass the yearly wage base ($184,500 in 2026)
- Medicare (1.45%), plus an extra 0.9% on wages over $200,000
- state income tax, where your state has one
The amount shows up in box 1 of your W-2.
2. Sale
Your cost basis is the value at settlement, the amount you already paid tax on. When you sell:
- sale price above basis → capital gain
- sale price below basis → capital loss
Hold more than one year after settlement and the gain is long-term. Otherwise it's short-term and taxed like salary.
An example
You receive 1,000 shares at settlement when the stock is $50.
- Ordinary income at settlement: $50,000
- Your basis: $50 per share
- Eighteen months later you sell at $70: $20,000 long-term gain
Sell right away at $50 and there's no extra gain at all. Your only tax is the tax on the $50,000 of wages.
How withholding works
Companies treat RSU income as supplemental wages. Most withhold a flat 22% federal, or 37% on supplemental wages above $1,000,000 in the year. They also withhold Social Security, Medicare and state tax at the state's supplemental rate.
They usually pay for this by keeping some of your shares, which is called sell-to-cover or net settlement. You receive the remaining shares.
If your income puts you in the 32%, 35% or 37% bracket, 22% is not enough. See The RSU withholding gap.
Private-company RSUs
Most private companies use double-trigger RSUs. They don't settle until both the time-based vesting and a liquidity event like an IPO have happened. That means years of RSUs can become taxable in a single day. See Double-trigger RSUs at IPO.
The price that counts is the one on your settlement date, usually that day's closing price, not the IPO-day open. See which price counts for details.
Common mistakes
- Double-counting basis. Brokers sometimes report a $0 basis on Form 1099-B. Use the value at settlement, or you'll pay tax on the same income twice.
- Assuming there's an 83(b) option. An 83(b) election can't be filed for RSUs.
- Holding just to avoid tax. Shares you keep after settlement are the same as buying company stock with your bonus. Decide on investment merits.
Model it
Add an RSU grant in the calculator to see income at settlement, what's withheld, and what you'll actually owe.
General information, not tax advice.
Frequently asked questions
How are RSUs taxed when they vest?
When your RSUs settle, the full market value of the shares delivered is considered ordinary income. This is taxed just like your salary and includes federal income tax, Social Security, Medicare, and applicable state income taxes. This amount will be reported on your W-2.
Do I pay taxes when I sell my RSUs?
Yes, you incur tax consequences upon selling. Your cost basis is the value of the shares at the time they settled. If the sale price is higher than your basis, you have a capital gain; if it is lower, you have a capital loss.
How does RSU withholding work?
Companies treat RSU income as supplemental wages and typically withhold taxes by keeping some of your shares, a process known as sell-to-cover. They generally withhold a flat 22% for federal taxes, though this may not cover your entire obligation if your income places you in a higher tax bracket.
What is a double-trigger RSU?
Most private companies use double-trigger RSUs that do not settle until both time-based vesting and a liquidity event, such as an IPO, occur. This means years of RSUs can become taxable all in one day based on the share price on that specific settlement date.
Official sources (for the detail-minded)
- IRC Section 83(a)RSU shares are income when they vest and are delivered
- Treas. Reg. Section 1.83-3(c)What counts as a risk of losing the shares (vesting)
- Treas. Reg. Section 31.3402(g)-1Flat 22% / 37% withholding on bonus-type pay
- IRS Publication 525IRS guide to restricted stock and stock awards
Run your own numbers
See your tax, take-home, and what to set aside. Free, and nothing is stored.
Keep reading
The RSU Withholding Gap: Why 22% Usually Isn't Enough
Your employer withholds a flat 22% on RSUs. If you earn more than about $200,000, you probably owe far more, and the difference is due in April.
Too Little Tax Taken Out? How to Spot and Fix Underwithholding
Your employer withholds a flat 22% on most equity income, but your real rate can be far higher. Here's how to spot the gap and close it.
Penalties for Paying Tax Late: Underpayment, Late-Payment and Late-Filing
Three different penalties can apply when tax is paid late. Here's what each costs and how the safe harbors keep you clear.
Buying Pre-IPO Shares on the Private Market: The Tax Basics
The IPO isn't a tax event for you. What matters is your purchase price, your purchase date and when you sell.
Estimates only. Not tax, legal, or investment advice. See our methodology