Amazon RSU tax hits in two stages: your shares are taxed as ordinary wage income the day they vest, and then any change in price between vesting and sale is taxed again as a capital gain or loss. The federal withholding Amazon applies at vesting is a flat 22%, and for most mid- and senior-level employees that rate is too low to cover what you actually owe. The gap is where the surprises come from every April.
What Vesting Costs You in Ordinary Income Tax
The IRS treats each RSU vest as compensation for services. Under Section 83(a) of the Internal Revenue Code, when property that was subject to forfeiture becomes yours to keep, its fair market value on that date is taxable income.1Office of the Law Revision Counsel. 26 U.S. Code 83 – Property Transferred in Connection With Performance of Services For Amazon RSUs, that value is the closing price of AMZN on the Nasdaq on the vesting date, multiplied by the number of shares that vested.
That amount is added to your salary and bonuses and reported in Box 1 of your W-2. It’s taxed at your ordinary rate, which for 2026 ranges from 10% to 37%.2Internal Revenue Service. Federal Income Tax Rates and Brackets Most Amazon employees with meaningful grants land in the 24%, 32%, or 35% bracket once vesting income is layered on top of salary.
FICA on Top
Vesting income is also subject to FICA. The Social Security portion is 6.2% on earnings up to $184,500 in 2026.3Social Security Administration. Contribution and Benefit Base If your base salary already exceeds that cap before any RSUs vest, no additional Social Security tax applies to the vesting. If not, some of the RSU income is taxed at 6.2% until you hit the limit.
Medicare is 1.45% on all vesting income with no cap. An extra 0.9% Additional Medicare Tax applies once your total wages exceed $200,000 for a single filer or $250,000 for married filing jointly.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax Amazon must start withholding the 0.9% once your wages pass $200,000 regardless of filing status,5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates so married couples may need to reconcile at tax time.
Why 22% Withholding Isn’t Enough
Federal law requires employers to withhold income tax on supplemental wages at a flat 22% for employees receiving less than $1 million in supplemental pay in the year.6Internal Revenue Service. Publication 15 – Employer’s Tax Guide Amazon applies that 22% through a sell-to-cover process: enough shares are automatically sold at vesting to cover the withholding, and the rest land in your account.
The problem is arithmetic. Take an employee in the 32% federal bracket who vests $100,000 of shares. Amazon withholds $22,000. The actual federal tax owed is closer to $32,000. That’s a $10,000 shortfall before state tax enters the picture. In the 35% bracket the gap is wider still. This is the single most common reason Amazon employees get a large bill in April.
Closing the Withholding Gap
You have two practical ways to catch up. The first is to file a new Form W-4 with Amazon asking for additional federal withholding from your regular paychecks. This spreads the shortfall across the year with no quarterly paperwork. The IRS Tax Withholding Estimator can help you size the request.7Internal Revenue Service. Estimated Tax for Individuals
The second is to make quarterly estimated tax payments on Form 1040-ES. For 2026 the deadlines are April 15, June 15, September 15, and January 15, 2027. If a large vest lands in the third quarter, a September 15 payment covers it.
Either way, aim for the IRS safe harbor. You avoid underpayment penalties if you pay at least 90% of your current-year tax or 100% of last year’s tax, rising to 110% of last year’s tax when your prior-year adjusted gross income exceeded $150,000.8Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax The 110% figure is the one that typically applies to Amazon employees with RSU income.
Amazon’s Back-Loaded Vesting Makes the Gap Grow
Amazon’s four-year grant vests 5% at the end of year one, 15% at the end of year two, then 40% in each of years three and four, with the years-three-and-four portions typically paid in semi-annual installments. A $200,000 grant produces around $10,000 of taxable vesting income in year one and about $80,000 in year three.
Employees who set their withholding around the light early years are the ones hit hardest later. If you’re heading into the back half of your schedule, revisit your W-4 or your estimated payments before the next big vest.
Capital Gains and Losses When You Sell
Once shares vest, any future price movement creates a separate tax event when you sell. Your cost basis is the fair market value on the vesting date, which is the amount already taxed as wages. Sell above that basis and you have a capital gain; sell below and you have a loss.
Holding period sets the rate. Shares held more than one year after vesting qualify for long-term capital gains rates of 0%, 15%, or 20% depending on taxable income.9Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, single filers don’t reach the 20% rate until taxable income tops $545,500. Shares sold within a year of vesting are taxed at your ordinary rate instead.
High earners owe an additional 3.8% Net Investment Income Tax on capital gains once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married filing jointly.10Internal Revenue Service. Net Investment Income Tax These thresholds are not indexed to inflation.
If you sell at a loss, that loss offsets other capital gains. Excess losses can offset up to $3,000 of ordinary income per year ($1,500 married filing separately), with the remainder carried forward.9Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The Wash Sale Trap
The wash sale rule disallows a capital loss when you acquire substantially identical shares within 30 days before or 30 days after the sale.11Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The detail that catches Amazon employees: a vesting event counts as acquiring new shares.
Sell some Amazon stock at a loss on June 1, and if more RSUs vest on June 20, the loss is disallowed. You don’t lose it permanently. It gets added to the basis of the newly vested shares. But you can’t use it on the current year’s return. If you were counting on the loss to offset a gain, the plan collapses.
Employees in years three and four vest every six months, which means a wash sale window sits just weeks away from most sale dates. Before harvesting a loss, check whether any vest falls within 30 days. When a wash sale does occur, it goes on Form 8949 with adjustment code “W” and the disallowed loss entered as a positive number in column (g).12Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets
Don’t Get Taxed Twice on Cost Basis
When you sell vested shares, your brokerage sends a Form 1099-B showing the sale proceeds. Many brokerages report the cost basis as zero or leave it blank for RSU shares. If you file with that zero basis, you pay capital gains tax on the entire sale price, even though you already paid ordinary income tax on the shares’ value at vesting. Same money, taxed twice.
The correct basis is the fair market value on the vesting date. Your brokerage should provide a supplemental cost basis statement alongside the 1099-B. If you can’t find it, your vesting confirmation from E*TRADE or Morgan Stanley at Work shows the per-share price on the vest date; multiply by shares sold.
On Form 8949, enter the correct basis in column (e). If the 1099-B reported an incorrect basis to the IRS, use adjustment code “B” in column (f) to flag the correction.12Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets Skipping that step is one of the most common reasons Amazon employees receive automated IRS notices claiming unreported income.
Reporting It All on Your Return
You need three documents: your W-2 (RSU vesting income is already in Box 1), Form 1099-B from the brokerage, and the supplemental cost basis statement. If you didn’t sell any shares during the year, only the W-2 matters, because the vesting income is already reflected in wages.
Each sale goes on Form 8949. The acquisition date is the vesting date, not the grant date. Enter proceeds, cost basis, and any adjustment.13Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Totals flow to Schedule D of Form 1040. Shares held one year or less go in Part I; more than one year in Part II. Line 16 of Schedule D nets everything out.14Internal Revenue Service. Instructions for Schedule D (Form 1040)
The 83(b) Election Does Not Apply
The Section 83(b) election, which lets recipients of restricted stock pay tax at the grant date instead of at vesting, does not work for RSUs. An 83(b) election requires that you actually own shares at the time of the election. RSUs are a contractual promise to deliver shares in the future; you own nothing until vesting, so there’s no property to elect on. This question comes up constantly, and the answer doesn’t change: 83(b) applies to restricted stock awards, not restricted stock units.
What Happens If You Leave Amazon
Unvested RSUs are forfeited immediately when your employment ends, whether you quit, are laid off, or are terminated for cause. Amazon’s award agreement states that the unvested portion terminates automatically at the end of employment, with limited exceptions for death. There is no partial vesting for time served between vest dates, and notice periods or garden leave do not extend vesting. If your regular hours drop below 30 per week, Amazon treats that as a termination for RSU purposes and forfeits the unvested units under the same rules.15Justia. Amazon.com, Inc. Global Restricted Stock Unit Award Agreement
During years three and four, when 80% of a grant is still ahead of you, the timing of a resignation relative to the next vest date can represent tens of thousands of dollars. Already-vested shares stay yours no matter when you leave.
State Tax and Relocation
Most states tax RSU income as ordinary income and apply their own supplemental withholding on top of the federal 22%. Rates range from zero in Texas, Florida, and Washington to over 10% in California.
Relocation during a vesting period is where this gets complicated. Some states claim the right to tax vesting income based on where the work was performed during the earning period, not just where you live when the shares vest. An employee who spent two years in California and then moved to Washington before a large vest may still owe California tax on part of that income. The allocation rules differ by state, and this is an area where professional advice is usually worth its cost.