Calculate RSU tax at vesting — ordinary income, Social Security, Medicare, state taxes, and shares needed to cover. Also shows after-vest capital gains.
RSUs vest and are taxed as ordinary income at the fair market value on the vest date. Federal supplemental withholding is 22% (37% above $1M). Social Security (6.2%) applies up to the $184,500 wage base, and Medicare (1.45%) applies to all wages. State income tax applies at your state's rate. The vest value becomes your cost basis — any appreciation after vesting is taxed as capital gains (long-term if held over 1 year from vest). The full vest value is reported on your W-2 as ordinary income.
Restricted Stock Units follow a two-stage tax sequence. Stage 1 is at vesting: the number of RSUs that vest multiplied by the stock price on the vest date equals your ordinary income for that vesting event. This income is fully taxable at your marginal rate and is subject to FICA taxes. Most employers withhold taxes at the 22% supplemental rate and use sell-to-cover — selling enough shares to cover the tax bill and delivering the remaining shares to you.
Stage 2 is when you eventually sell the shares retained after vesting. The difference between your sale price and the vest-day price (your cost basis) is a capital gain or loss. If you hold the shares for more than one year from the vest date, the gain qualifies for long-term capital gains rates. If you sell within one year, it is a short-term gain taxed as ordinary income. The clock starts at the vest date — not the grant date.
A critical and commonly missed point: your employer reports the full vest value on your W-2 regardless of which shares you sold to cover taxes. If 100 RSUs vest at $50 and you sell 22 shares to cover taxes and keep 78 shares, your W-2 shows $5,000 in wages — not $3,900. The 22 shares sold to cover taxes show a $0 gain on your 1099-B (since you sold at the same price that was your basis), but the full $5,000 appears as W-2 income.
Alicia has 100 RSUs vesting. The stock price is $45.00 on vest day. She is a single filer in California earning $95,000 salary with $0 YTD FICA wages before this vest.
California's high state income tax rate (up to 13.3%) dramatically increases the tax burden at vesting compared to no-income-tax states. The same vesting event in Texas would cost $1,334 less in state taxes, allowing Alicia to retain approximately 30 more shares.
FICA wage base impact
RSU vesting is subject to Social Security (6.2%) on cumulative wages up to $184,500. If your base salary already exceeds the wage base before RSUs vest, you pay no Social Security on your RSU income — saving 6.2% on the vest value. Employees with large equity grants should track their YTD wages carefully to understand their FICA exposure at each vest date throughout the year.
Withholding may not match actual tax
Employers typically withhold federal taxes on RSUs at the 22% supplemental rate. If your marginal rate is 32% or 37%, you will owe significant additional tax at filing. Tech employees with large RSU grants and high salaries frequently face unexpected April tax bills because their RSU withholding was 15 percentage points below their actual marginal rate. Adjust your quarterly estimated payments or file a new W-4 with additional withholding to avoid underpayment penalties.
State taxation at vest AND at sale
Your state of residency at the time of vesting owes income tax on the vest value. If you later move states and sell the shares, the capital gain is taxed in your new state of residency at sale. If you received RSU income while living in California then moved to Texas before selling, California may still claim tax on the gain during the California employment period. Multi-state RSU taxation is complex — consult a CPA for interstate RSU strategies.
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Restricted Stock Units (RSUs) are taxed as ordinary income at the time of vesting, not at grant. When your RSUs vest, the fair market value of the shares on the vest date is included in your W-2 income and taxed at your ordinary income rates — including federal income tax, Social Security (6.2% up to $184,500 wage base), Medicare (1.45%), and state income tax. Your employer typically withholds these taxes by selling some of your shares (sell-to-cover) or allowing you to pay in cash. The vest value becomes your cost basis for future capital gains calculations.
The cost basis of RSU shares is the fair market value on the vest date — the same amount reported as ordinary income on your W-2. If 100 RSUs vest when the stock is at $50/share, your cost basis is $5,000 ($50 × 100). When you later sell, any gain above $50/share is a capital gain (long-term if held over 1 year from vest, short-term if sold within 1 year). Many employees make the mistake of forgetting their cost basis was already taxed as income and pay capital gains tax again on the full sale price.
The number of shares withheld depends on the tax owed and the stock price at vesting. For example, if 100 RSUs vest at $45/share ($4,500 total value) and your tax withholding rate is 22% federal + 6.2% SS + 1.45% Medicare + 2.5% state = 32.15%, the employer withholds taxes on $4,500 × 32.15% = $1,447 in taxes. At $45/share, that requires selling approximately 33 shares, leaving you with 67 shares. The exact number depends on your specific tax situation and whether your employer uses a flat 22% or your marginal rate.
Many financial advisors recommend selling RSU shares immediately at vesting to diversify away from company-specific risk. When you hold RSU shares after vesting, you are making an active investment decision in your employer — you already paid taxes on their value, so holding them is equivalent to taking your after-tax proceeds and buying company stock. If you do hold, you need the stock to appreciate enough above the vest price to compensate for the capital gains tax you will owe at sale. Holding for over one year qualifies any appreciation for long-term capital gains rates.
Yes. The full fair market value of RSUs at vesting is reported on your W-2 in Box 1 (Wages) and Boxes 3, 4, 5, and 6 (Social Security and Medicare wages and taxes withheld). The RSU income increases your reported wages on your W-2 even if you sold shares to cover taxes and did not receive any cash. You also receive a Form 1099-B for any shares sold (including those sold to cover taxes), which you report on Schedule D. The cost basis for shares sold to cover taxes is the vest price, resulting in $0 gain for those shares.