RSU tax is calculated in two stages. First, when your shares vest, the fair market value on that date times the number of shares delivered is added to your W-2 wages and taxed as ordinary income at your marginal rate, along with Social Security and Medicare. Second, when you sell the shares, you owe capital gains tax on the difference between the sale price and that vesting-date value, at short-term or long-term rates depending on how long you held. Nothing is taxed at grant.
The Ordinary Income Piece at Vesting
The IRS treats the shares you receive on the vesting date as compensation for your work. Multiply the stock’s fair market value (FMV) on the day the shares hit your account by the number of shares that vested. If 100 shares vest when the stock trades at $50, that’s $5,000 of ordinary income added to your W-2 wages for the year.1Internal Revenue Service. U.S. Taxation of Stock-Based Compensation Received by Nonresident Aliens
That amount is taxed at your marginal federal rate, stacked on top of everything else you earned. A large vest in December, dropped on top of a full year of salary, can push part of the income into a higher bracket than you’d expect from looking at the RSU value on its own.
Payroll Taxes on the Vested Value
RSU vesting income also gets hit with payroll taxes. Employers withhold 6.2% for Social Security on the vested value, up to the 2026 wage base of $184,500.2Social Security Administration. Contribution and Benefit Base If your salary alone already exceeds that cap before the shares vest, no additional Social Security tax applies to the RSU income. Medicare tax of 1.45% applies with no cap.
An additional 0.9% Medicare surtax kicks in once total wages for the year exceed $200,000 for single filers. Employers withhold this extra amount once your year-to-date wages cross that line. Between federal income tax, Social Security, and Medicare, a meaningful chunk of the vested value disappears before anything settles in your brokerage account.
Your Cost Basis Is the Vesting-Date FMV
The FMV on the vesting date becomes your cost basis in the shares. It is the price you “paid” for the stock through your labor. If 100 shares vest at $50, your basis is $5,000.3Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
This number is the pivot for the second tax event. Get it wrong and you’ll pay tax twice on the same dollars, because your brokerage’s 1099-B often reports a basis of $0 or a figure that ignores the wages already on your W-2. More on how to fix that below.
Capital Gain or Loss When You Sell
Selling the shares triggers a separate tax event. The gain (or loss) is the sale proceeds minus your cost basis. Sell those 100 shares at $60 and you have a $1,000 gain. Sell at $40 and you have a $1,000 loss.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The rate depends on how long you held the shares after vesting. The holding clock starts the day after the vesting date.
- One year or less is short-term, taxed at your ordinary income rate.
- More than one year is long-term, taxed at 0%, 15%, or 20%.
For 2026, single filers pay 0% on long-term gains up to $49,450 of taxable income, 15% up to $545,500, and 20% above that. Joint filers hit 15% above $98,900 and 20% above $613,700.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Holding longer can cut the tax bill meaningfully, but it also means carrying single-stock risk in your own employer. That tradeoff is worth weighing before letting tax rates drive the timing.
The 3.8% Net Investment Income Tax
High earners owe an additional 3.8% net investment income tax (NIIT) on capital gains from selling RSU shares. The tax hits the lesser of your net investment income or the amount your modified AGI exceeds these thresholds:5Internal Revenue Service. Net Investment Income Tax
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
These thresholds are statutory and are not adjusted for inflation. For someone already in the 20% long-term bracket, NIIT pushes the effective rate on the gain to 23.8%.
Why Employer Withholding Usually Falls Short
For federal income tax, employers withhold on RSU income at the flat supplemental wage rate of 22%, up to $1 million in supplemental wages for the calendar year. Anything above $1 million is withheld at 37%.6Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Most companies cover this by selling a portion of your shares at vesting (sell-to-cover), selling all of them (same-day sale), or letting you pay the tax in cash and keep every share.
The 22% rate is a blunt instrument. If your combined salary and RSU income put you in the 32% or 35% federal bracket, withholding covers roughly two-thirds of your actual liability. State taxes widen the gap: most states with an income tax apply their own supplemental rate to RSU income, ranging from about 1.5% to over 10%, and nine states tax no wage income at all.
Estimated Taxes and Safe Harbors
If flat withholding leaves you owing more than $1,000 at filing, an underpayment penalty is on the table. Two safe harbors avoid it:7Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- Pay at least 90% of the tax you owe for the current year, or
- Pay at least 100% of the tax shown on last year’s return (110% if your prior-year AGI exceeded $150,000, or $75,000 if married filing separately).
For most RSU recipients with high incomes, the 110% prior-year safe harbor is the easier target. Close the gap by adjusting your W-4 to withhold extra from regular paychecks, by making quarterly estimated payments on Form 1040-ES, or both. Estimated payments are due April 15, June 15, September 15, and January 15 of the following year.8Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals
How RSUs Show Up on Your W-2
The total value of shares that vested during the year is included in Box 1 (wages), Box 3 (Social Security wages, up to the wage base), and Box 5 (Medicare wages). Many employers add a line in Box 14 labeled “RSU” or “RS” showing the RSU portion of your income.1Internal Revenue Service. U.S. Taxation of Stock-Based Compensation Received by Nonresident Aliens
Box 12 Code V is not for RSUs. That code reports nonstatutory stock option exercises. Your RSU income is folded into Box 1 alongside your salary, which is why many people underestimate how much of their W-2 comes from stock vesting.
Reporting the Sale and Fixing Cost Basis
When you sell, your brokerage sends a Form 1099-B with the sale proceeds and date. You report the sale on Form 8949, and the totals flow to Schedule D of your Form 1040.9Internal Revenue Service. Instructions for Form 1099-B (2026)
Brokerages frequently report a $0 cost basis on the 1099-B, or a basis that omits the compensation income already on your W-2. File using that figure and you’ll pay capital gains tax on the entire sale proceeds, on top of the ordinary income tax you already paid at vesting. Catching this is your responsibility.
To correct it on Form 8949, enter the incorrect basis from the 1099-B in column (e), put adjustment code “B” in column (f), and enter the correction in column (g). If the 1099-B showed $0 and your actual basis is $5,000, the adjustment is negative $5,000, which reduces the reported gain by that amount.10Internal Revenue Service. Instructions for Form 8949 Short-term and long-term totals combine on Schedule D to produce your net capital gain or loss for the year.11Internal Revenue Service. Instructions for Schedule D (Form 1040)
The Wash Sale Trap Around Vesting Dates
The wash sale rule can quietly kill a capital loss deduction. Sell RSU shares at a loss and acquire substantially identical shares within 30 days before or after the sale, and the loss is disallowed. A vesting event counts as an acquisition. If shares vest inside that 30-day window around a loss sale, you have a wash sale whether you meant one or not.
The disallowed loss doesn’t disappear. It’s added to the basis of the newly acquired shares and deferred until you sell those. But brokerages are generally not required to adjust the basis of RSU shares for wash sales, so the calculation and reporting on Form 8949 fall to you.10Internal Revenue Service. Instructions for Form 8949 Regular quarterly vests make loss-harvesting sales in the surrounding weeks almost certain to trip the rule, so timing matters.
A Note for Private-Company Employees
Everything above assumes you can sell shares at or near vesting to cover taxes. If your employer is privately held and there’s no market for the stock, vesting can trigger a tax bill you can’t fund from the shares themselves. Section 83(i) lets qualifying employees at qualifying private companies elect to defer the income tax for up to five years after vesting, but eligibility is narrow, the election must be made within 30 days, and the tax at the end of the deferral is still based on the original vesting-date value even if the stock later drops.12Internal Revenue Service. Guidance on the Application of Section 83(i) Notice 2018-97 If this describes your situation, confirm with your employer whether the stock qualifies before relying on it.