Are RSUs Subject to FICA? Withholding, Wage Base, and Refunds

Yes, RSUs are subject to FICA. Social Security tax at 6.2% and Medicare tax at 1.45% are owed on the full fair market value of your shares the moment they vest, not when you eventually sell them. For 2026, the Social Security portion applies only up to the $184,500 wage base, while Medicare has no cap and an extra 0.9% kicks in on higher earners.1Social Security Administration. Contribution and Benefit Base

When FICA Is Triggered

The federal tax code contains a “special timing rule” for deferred compensation at 26 U.S.C. ยง 3121(v)(2). Amounts deferred under a nonqualified deferred compensation plan get taken into account for employment tax purposes on the later of two dates: when you perform the services that earned the right, or when that right is no longer subject to a substantial risk of forfeiture.2Office of the Law Revision Counsel. 26 USC 3121 – Definitions For most RSU holders, both dates land on the same day: the vesting date. That’s when you’ve met the service requirement and can no longer lose the shares by quitting or being terminated.

Treasury’s implementing rule at 26 CFR 31.3121(v)(2)-1 restates the timing rule and directs that “substantial risk of forfeiture” is determined under the principles of Section 83.3eCFR. 26 CFR 31.3121(v)(2)-1 – Treatment of Amounts Deferred Under Certain Nonqualified Deferred Compensation Plans Once the conditions in your grant agreement are met and the shares are yours to keep, FICA is owed on that value immediately.

This trips people up because federal income tax on RSUs works slightly differently. Income tax is triggered when the shares are actually delivered to you, which tax professionals call “settlement.” Most plans vest and settle on the same day, so the distinction stays invisible. But some plans separate the two events, batching all shares that vested in a quarter to settle on a single date. In those cases, FICA hits at vesting while income tax waits until settlement.4Internal Revenue Service. Publication 525, Taxable and Nontaxable Income Your employer must deposit FICA at a point where you may not yet have shares in your brokerage account.

How the Tax Is Calculated

The taxable amount is straightforward. Multiply the number of shares vesting by the stock’s fair market value on the vesting date. If 500 shares vest and the stock closes at $120, the taxable value is $60,000. Standard FICA rates apply to that figure.

For 2026:

Your employer matches the 6.2% Social Security and 1.45% Medicare portions. The Additional Medicare Tax of 0.9% is entirely the employee’s responsibility with no employer match. Employers must begin withholding it once your year-to-date wages cross $200,000, regardless of your filing status. If your actual threshold is higher because you file jointly, you reconcile the difference on your tax return.

The Social Security Wage Base and Why Timing Matters

Social Security tax applies only to a fixed amount of earnings each year. For 2026, the cap is $184,500.1Social Security Administration. Contribution and Benefit Base Once your year-to-date wages from salary, bonuses, and vested RSUs cross that line, your employer stops withholding the 6.2% for the rest of the year. Medicare, remember, keeps applying to every dollar.

The cap matters more than most employees realize. Suppose you earn a $150,000 salary and 1,000 shares vest in March at $80 each. That single vesting event pushes your year-to-date compensation to $230,000. You’d owe Social Security tax on only the first $34,500 of the RSU value (the gap between your $150,000 salary and the $184,500 cap). The remaining $45,500 is exempt from Social Security tax.

Later vesting events in the same year may be entirely free of Social Security tax if you’ve already exceeded the cap, which means more of those shares end up in your pocket. This is one reason employees with large RSU grants sometimes notice their net paycheck from a December vest looks larger than an identical vest in February.

How Employers Collect the Tax

FICA isn’t the only withholding at vesting. Federal income tax comes out too, at the flat supplemental wage rate of 22% for 2026, rising to 37% on supplemental wages above $1 million for the year.7Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Combined with FICA, 30% to 40% of your vesting shares typically disappear to taxes before anything lands in your account.

Companies use a few standard methods to cover the bill:

  • Sell to cover, where the plan’s brokerage automatically sells enough newly vested shares on the open market to generate the cash needed for all withholding. You keep what remains.
  • Share withholding, sometimes called netting, where your employer holds back a portion of the vesting shares and pays the equivalent tax in cash to the IRS. No market sale occurs.
  • Cash payment, where you wire or write a check from your own funds and keep the full share allotment. Less common, and it requires liquidity most employees don’t have on hand.

Sell to cover is overwhelmingly the default. Whether the 22% flat rate leaves you overtaxed or undertaxed depends on your total income. Employees with large RSU grants often sit in the 32% or 35% bracket, meaning the 22% supplemental rate actually undertaxes them. Expect a balance due at filing time, or adjust your W-4 accordingly.

The Retirement Eligibility Trap

Here’s where the FICA rules catch experienced employees off guard. If your RSU plan provides that unvested shares will continue vesting (or accelerate) after you retire, the IRS considers the substantial risk of forfeiture to have lapsed as soon as you become eligible for retirement, even if you have no intention of retiring.

The logic flows from the statute and regulations. The FICA timing rule keys off the moment there is no longer a substantial risk of forfeiture.2Office of the Law Revision Counsel. 26 USC 3121 – Definitions The regulations direct that this determination follows the principles of Section 83, which asks whether your right to the property depends on performing future services.3eCFR. 26 CFR 31.3121(v)(2)-1 – Treatment of Amounts Deferred Under Certain Nonqualified Deferred Compensation Plans Once you qualify for retirement under the plan’s terms, you could walk away and still receive the shares, so the remaining service requirement is no longer substantial.

The practical consequences can be jarring. Say your plan lets employees who reach age 60 with 10 years of service retire and keep unvested RSUs. If you hit that milestone in March but your next tranche doesn’t vest until November, FICA is owed in March. If you were already retirement-eligible at the time of the grant, FICA is owed immediately at grant. Your employer may withhold FICA on shares you won’t receive for months, based on a value that could look very different by the actual delivery date.

Refunds When Two Employers Both Withhold

If you work for two or more employers during the year and your combined wages exceed the $184,500 Social Security wage base, each employer withholds independently. Neither knows what the other has collected. You end up overpaying Social Security tax, and the IRS lets you claim the excess as a credit on your income tax return.8Internal Revenue Service. Topic No. 608, Excess Social Security and RRTA Tax Withheld

This comes up frequently for employees who change jobs mid-year and have large RSU vests at both companies. Each employer resets the Social Security wage base counter to zero. If you earned $100,000 at your old job and then your new employer vests $120,000 in RSUs, that new employer withholds Social Security tax on the full $120,000 even though your combined earnings already blew past the cap. You’d claim the overpayment back when you file. If you’re filing jointly, each spouse calculates the excess separately.

What FICA on RSUs Doesn’t Cover

A Section 83(b) election doesn’t help you here. That election lets you pay income tax on restricted property at the time of transfer rather than at vesting, but the operative word is “transferred.”9Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services When your employer grants RSUs, no property changes hands. You receive a contractual promise, not actual shares, so there is nothing for the 83(b) election to attach to. Restricted stock awards are a different instrument and can be the subject of an 83(b) election; RSUs cannot. Confirm which type of equity you hold before you plan around either.

Federal FICA also isn’t the only payroll-style tax that applies to your vesting shares. A number of states impose their own disability insurance, paid family leave, or similar payroll taxes on earned income, and RSU vests count. Rates and wage caps vary widely, so check your state’s specific rules before you assume the federal picture is complete.