The taxation of restricted stock units happens in two stages. When your RSUs vest, the full market value of the shares is treated as ordinary wage income and added to your W-2. When you later sell those shares, any change in price between the vesting date and the sale date is a capital gain or loss. The tax bill at vesting is usually the larger one, and it’s the one people most often underestimate, because employer withholding tends to fall short of the actual rate you owe.
Ordinary Income When Shares Vest
Before vesting, RSUs are just a promise. You don’t own the shares, you can’t vote them, and no dividends flow to you. The moment they vest and land in your brokerage account, federal tax law treats their full fair market value as compensation for services, no different from salary.1Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
Your employer adds that amount to Box 1 of your W-2. If 500 shares vest at $80, you have $40,000 of extra ordinary income for the year. Federal rates for 2026 run from 10% to 37% depending on filing status and total earnings, and the RSU income stacks on top of your salary when your bracket is calculated.
Payroll taxes apply too. Social Security takes 6.2% on wages up to the 2026 base of $184,500, Medicare takes 1.45% with no cap, and an additional 0.9% Medicare surtax kicks in on combined wages above $200,000 in a calendar year.2Internal Revenue Service. Topic No. 751 – Social Security and Medicare Withholding Rates State and local income taxes reduce your take-home further where they apply.
The fair market value on the vesting date also becomes your cost basis in the shares. That number matters later, when you sell.
Why Your Employer’s Withholding Usually Isn’t Enough
Your employer has to cover taxes the moment shares vest, and most companies handle it by selling enough of your newly vested shares to pay federal, state, and payroll taxes, then depositing the rest in your account. Some companies net shares internally instead, and a few let you write a check for the tax bill and keep every share.
Whichever method your company uses, the federal piece is almost certainly under-withheld. The IRS requires employers to withhold on RSU income as supplemental wages at a flat 22% under $1 million and 37% above that.3Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide If you earn $200,000 in salary and $150,000 of RSUs vest in the same year, your marginal federal rate on that RSU income is likely 32% or higher. Your employer withheld only 22%. That 10-point gap can produce a five-figure balance due at filing, and state withholding may be short as well.
The way to prevent an underpayment penalty is to cover, through withholding and estimated payments combined, at least the smaller of 90% of your 2026 tax or 100% of your 2025 tax. If your 2025 adjusted gross income was over $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.4Internal Revenue Service. 2026 Form 1040-ES, Estimated Tax for Individuals The cleanest options are to raise withholding on your salary through your W-4 or make a quarterly estimated payment in the quarter your RSUs vest. Waiting until you file means the payment deadlines are gone and interest starts stacking on top of the penalty.
Capital Gains or Losses When You Sell
Selling the shares is a separate tax event. The gain or loss is the difference between your sale price and your cost basis, which was set on the vesting date. Shares that vested at $80 and sold at $110 produce a $30-per-share gain; sold at $65, a $15-per-share loss.
Holding period sets the rate. Sell within one year of vesting and any gain is short-term, taxed at your ordinary income rate. Hold longer than a year and it’s long-term, capped at 20% instead of 37%.5Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses The 2026 long-term brackets are 0% up to $48,350 of taxable income single ($96,700 married filing jointly), 15% up to $533,400 single ($600,050 jointly), and 20% above those.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Losses offset other capital gains for the year. When losses exceed gains, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately) and carry the rest to future years.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses
High earners owe an extra 3.8% net investment income tax on capital gains once modified adjusted gross income passes $200,000 single or $250,000 married filing jointly.7Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax The tax hits the smaller of your net investment income or the amount your MAGI exceeds the threshold. On $50,000 of RSU gains at a $350,000 income, that’s roughly $1,900 on top of the regular capital gains rate.
The Cost-Basis Trap on Form 1099-B
This is where RSU holders lose real money at filing time. When you sell, your brokerage sends a Form 1099-B reporting the sale proceeds.8Internal Revenue Service. Instructions for Form 1099-B Brokers often report the cost basis as $0, or use a figure that doesn’t reflect the income you already paid tax on through your W-2.
Say 1,000 shares vested at $100 each, adding $100,000 to your W-2. You later sell all 1,000 at $105. Your real gain is $5,000. But if the 1099-B shows a $0 basis, it reports $105,000 as gain. Copy that onto your return and you’ll pay capital gains tax on $105,000, taxing the same $100,000 twice.
The fix goes on Form 8949. Enter the basis shown on the 1099-B in column (e), put adjustment code “B” in column (f) to flag the incorrect basis, and enter the correction in column (g).9Internal Revenue Service. Instructions for Form 8949 The totals flow to Schedule D, where your actual gain or loss is calculated.10Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Your stock plan administrator usually issues a supplemental statement showing the fair market value used at vesting and the shares sold or withheld for taxes. Keep it. Reconstructing basis years later, if the IRS ever asks, is painful without that document.
Wash Sales Triggered by Vesting
A wash sale happens when you sell a security at a loss and acquire substantially identical stock within 30 days before or after the sale. The IRS disallows the loss and adds it to the basis of the replacement shares instead.11Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
RSU vesting counts as acquiring shares. So if you sell company stock at a loss and new RSUs in the same company vest anywhere in the 61-day window around that sale, the loss is disallowed to the extent of the shares that vested. It’s not lost forever — it moves into the basis of the vested shares — but it can’t offset gains this year. If you’re planning to harvest a loss on company stock, check your vesting calendar before you sell.
Leaving Before Your RSUs Fully Vest
Unvested RSUs typically disappear when you leave the company. No shares transfer, no taxable event occurs, and nothing gets reported on your return. Some plans provide exceptions for disability, death, or retirement, so the specifics depend on your grant agreement and employer policy.
Anything that already vested before you left is yours to keep. The ordinary income tax was already collected at vesting, and any future sale of those shares follows the normal capital gains rules. Leaving doesn’t change the tax treatment of shares you already received.
Section 83(b) Elections Don’t Work for RSUs
If someone has told you that a Section 83(b) election lets you prepay tax on stock compensation at a lower value, that strategy doesn’t apply here. Section 83(b) works when you receive actual property subject to a vesting restriction, such as a restricted stock award where you own real shares from day one but could forfeit them. RSUs aren’t property at grant; they’re a contractual promise to deliver shares later.1Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services Nothing has been transferred, so there’s nothing to elect on. The tax event happens at vesting, and you can’t accelerate it.
Deferral for Private-Company Employees
Private-company employees face a hard problem: RSUs vest and generate a tax bill, but there’s no public market for selling shares to pay it. Section 83(i) lets qualifying employees defer the income tax on vested RSU shares for up to five years.1Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
The requirements are narrow. The company must be private (no publicly traded stock in any prior year) and must have a written plan granting stock options or RSUs to at least 80% of its U.S. employees with the same rights and privileges. You must make the election within 30 days of vesting and agree to hold the shares in escrow so the company can satisfy withholding later.12Internal Revenue Service. Guidance on the Application of Section 83(i) (Notice 2018-97)
You can’t use the deferral if you’re a 1% owner, a current or former CEO or CFO, or among the four highest-paid officers at any point in the current year or the preceding ten years. The deferral ends at the earliest of five events: the stock becomes transferable, you become a disqualified employee, the company goes public, five years pass since vesting, or you revoke the election.12Internal Revenue Service. Guidance on the Application of Section 83(i) (Notice 2018-97) When the deferral ends, the full vesting-date value hits your income that year. The election delays the tax, it doesn’t reduce it, but for employees who can’t sell shares to cover the bill, the delay can prevent a real cash crisis.