RSU Tax Calculator: How Much You Actually Keep From Your Stock Vesting

Restricted Stock Units (RSUs) vest and become income. The day they vest, the IRS treats them as ordinary wage income, not capital gains, regardless of how long you hold them after. Many employees are surprised by the tax bill.

Understanding RSU taxation before the shares vest lets you plan for the liability and decide whether to sell or hold.

How RSU Taxation Works

On the vesting date:

1. Shares vest and transfer to you
2. The fair market value on that day is recognized as ordinary income
3. Income is reported on your W-2 (added to your salary)
4. Payroll taxes (FICA) apply if you have not yet hit the wage base

Example: 100 RSUs vest when the stock price is $150/share.

• Gross income recognized: $15,000
• This adds to your regular salary for the year
• Total compensation for tax purposes: $85,000 salary + $15,000 RSUs = $100,000

The Withholding Calculation

Most employers withhold at the supplemental wage flat rate:

• Federal: 22% (flat, up to $1M in supplemental wages)
• FICA: 7.65% (until wage base is hit)
• State: varies by state

On $15,000 in RSU income, $100,000 total compensation, single filer:

| Tax | Rate | Amount | |-----|------|--------| | Federal income tax (22% flat withholding) | 22% | $3,300 | | Social Security (if under wage base) | 6.2% | $930 | | Medicare | 1.45% | $218 | | State (5%) | 5% | $750 | | Total withheld | 34.65% | $5,198 |

Net shares received in cash equivalent: $15,000 - $5,198 = $9,802

Many employers withhold by selling shares to cover the tax liability. If you received 100 shares and the employer withholds 35%, you receive 65 shares and the employer sells 35 shares to pay taxes. You see 65 shares in your brokerage, not 100.

The Important: 22% Is Often Under-Withheld

The 22% flat federal withholding is the base rate for supplemental wages. But if your RSUs push you into the 32% or 37% bracket, you will owe more at filing than was withheld.

Example of under-withholding:

• Base salary: $180,000 (in 32% marginal bracket)
• RSUs vesting: $50,000
• Total income: $230,000 (in 35% marginal bracket for the additional income)
• Federal withholding on RSUs: 22% = $11,000
• Actual federal tax on RSUs at 35%: $17,500
• Under-withheld: $6,500 you will owe April 15

For employees with large RSU grants, adjust your W-4 to withhold more from regular paychecks, or make quarterly estimated tax payments.

After Vesting: Capital Gains on Future Price Changes

Once shares vest and you pay ordinary income tax on the vest-date value, your cost basis is the vest-date price.

Example:

• Vest date: shares worth $150/share (ordinary income paid)
• Hold 13 months, sell at $200/share
• Cost basis: $150
• Capital gain: $50/share
• Tax on gain: 15% long-term capital gains (held over 1 year)
• Tax: $7.50/share

If you sold the day after vesting:

• Sell at $151/share
• Short-term capital gain: $1/share
• Tax on gain: 22% ordinary income rate
• Tax: $0.22/share

Holding RSUs for over a year after vesting converts future appreciation to long-term capital gains, which are taxed at lower rates than ordinary income. The vest-day value itself is always ordinary income.

The "Hold or Sell" RSU Decision

Many employees hold RSUs as an expression of loyalty or confidence in their employer. From a financial planning perspective:

The concentration risk problem: If you are an employee at Company X and 30% of your net worth is in Company X stock (through RSUs and/or 401k company match), your income and your investments are correlated. A bad event at the company hurts both simultaneously.

The diversification argument: Sell RSUs when they vest (or as soon as tax strategy allows) and diversify into a broad market index fund. You are already "long" your employer through your salary and human capital.

The tax argument: If shares have appreciated significantly since vesting, holding longer converts gains to long-term capital gains. If the stock has depreciated since vesting, selling sooner avoids further loss and allows tax-loss harvesting.

A reasonable default: sell enough RSUs immediately to cover the tax bill, then make a deliberate decision about the remainder based on conviction in the company vs. diversification need.

RSUs vs. Stock Options

| Feature | RSUs | Stock Options | |---------|------|---------------| | Value at vest/grant | Vest value = FMV | Options have no value if stock is below strike price | | Tax at vest | Ordinary income on FMV | Nothing (if ISOs) or income on spread (NSOs) | | Tax at sale | Capital gains on appreciation | Capital gains (ISOs may face AMT) | | Risk if stock drops | Less risk (always worth something above $0) | Can expire worthless | | Popularity | Now more common | Historically common |

RSUs have largely replaced options at large public companies because they retain value even if the stock does not rise.

Frequently Asked Questions

What is a 83(b) election and does it apply to RSUs?

An 83(b) election allows you to pay tax on unvested stock at the current (lower) price rather than when it vests (potentially higher price). It applies to restricted stock, not standard RSUs. Some startups issue restricted stock rather than RSUs, where 83(b) elections make sense. For standard RSUs, 83(b) elections typically do not apply.

What happens to unvested RSUs if I leave the company?

Unvested RSUs are forfeited when you leave, with some exceptions for negotiated retention grants or double-trigger acceleration provisions in an acquisition. Check your equity agreement carefully before resigning or accepting other job offers.

Do RSUs affect my eligibility for Roth IRA contributions?

Yes. RSUs add to your MAGI. If RSU income plus salary pushes you above the Roth IRA income limits ($165,000 single, $246,000 MFJ in 2026), you cannot contribute directly. Use the backdoor Roth instead.