Restricted stock units (RSUs) are the most common form of equity compensation at US public tech companies. When shares vest, the fair market value is ordinary W-2 income—subject to federal, state, and payroll taxes. Employers typically withhold shares (sell-to-cover) or cash from your paycheck, but supplemental withholding rates often under-cover top-bracket earners. This guide explains vest taxation, cost basis for later sales, and how to use the free RSU tax calculator before a large vest hits your pay stub.
Vest day = payday The IRS treats RSU vesting like bonus income. Your W-2 for the vest year includes the FMV of shares delivered (before any shares sold for taxes). Plan estimated payments if withholding looks light.
What happens on the vest date
Example: 500 RSUs vest when the stock trades at $120 → $60,000 of taxable income in that pay period, even if you never sell. The broker may sell ~22–37% of shares for federal withholding (supplemental rate), plus state tax. Net shares land in your brokerage account; your cost basis for a future sale equals the FMV included in W-2 on vest day.
Withholding vs actual tax owed
Federal supplemental withholding is often 22% (37% above $1M supplemental wages in a year).
High earners in CA/NY may owe more at filing than was withheld on the vest.
Stack RSU income with salary, bonus, and ISO exercises when estimating marginal rate.
Consider quarterly estimated tax if multiple large vests land in one year.
Selling after vest: capital gain or loss
If you sell immediately after vest, gain or loss is usually small (spread between sale price and vest FMV). Hold 12+ months after vest for long-term treatment on appreciation—but you already paid ordinary tax on the vest itself. Model a same-day sale vs hold scenario in the RSU calculator and capital gains tool.
Concentration and 10b5-1 plans
Many employees accumulate employer stock faster than they diversify. A 10b5-1 plan can automate sales on a schedule during open windows. From a tax perspective, spreading sales across years may smooth brackets but does not change vest ordinary income.
RSU vs ISO (quick contrast)
RSUs are taxed at vest with no exercise decision. Incentive stock options (ISOs) may trigger AMT at exercise instead—see our ISO/AMT guide if you hold both in the same year.
Remote work and multi-state vesting
If you lived in two states during the period between grant and vest, allocation rules may split RSU income across state returns. Remote work policies changed rapidly after 2020—keep grant agreements, vest confirmations, and payroll W-2 detail for each state involved. A CPA familiar with multi-state equity compensation is worth the fee before you file.
Checklist before a large vest
Estimate W-2 impact and update W-4 or estimated payments.
Confirm cost basis on broker statement matches vest FMV.
Decide sell-to-cover vs hold net shares before blackout periods.
Review state tax if you moved or worked remotely during grant/vest.
Save equity portal PDFs for cost basis and withholding audit trail.