How are RSUs taxed? Vesting, withholding and selling

Restricted stock units are taxed twice, at two different moments. When they vest and the shares are delivered, their value is pay, taxed like salary. When you later sell the shares, only the price change since vesting is taxed, as a capital gain or loss. Most RSU tax surprises come from the gap between what is withheld at vesting and what you really owe, and from a cost basis that is reported wrong.

When are RSUs taxed?

Not when they are granted, and not while they are unvested. When an RSU vests and the company delivers the shares, the shares are taxable income and count as wages: the market value of the shares on that date goes on your W-2 and is subject to federal income tax withholding, Social Security and Medicare, even though you were paid in stock rather than cash. Depending on the plan, the withholding is paid by holding back some of the shares or selling some for you.

How much tax is withheld when RSUs vest?

If your employer withholds at the flat supplemental rate, federal withholding is 22% of the vesting value (37% on supplemental wages above $1,000,000 in a year), plus Social Security, Medicare and any state tax. That flat rate can be below your real bracket.

The bonus tax calculator works the same way for any vesting: enter the vesting value as the bonus.

What happens when I sell RSU shares?

The value you were taxed on at vesting becomes your cost basis. When you sell, the gain or loss is the sale price minus that basis, and the holding period starts when you received the shares.

• Sell right at vesting: the price has barely moved, so there is little or no gain. All the tax was the wage tax.
• Sell after more than a year: the change since vesting is a long-term gain. In the example, selling at $180 gives a $3,000 gain and about $450 of federal tax.
• Sell within a year: the same gain is short-term and taxed at ordinary rates: about $720.

Estimate a sale with the capital gains tax calculator, using the vesting value as your cost basis.

Watch the cost basis on your 1099-B

Do RSUs trigger the wash-sale rule?

They can. If you sell company shares at a loss and, within 30 days before or after the sale, you receive substantially identical shares, for example from another RSU vesting, the loss is a wash sale. You cannot deduct it then; it is added to the basis of the new shares instead. IRS Publication 550 gives exactly this example for stock received as a bonus award.

What about private companies?

Employees of some private companies can elect under section 83(i) to defer income tax on qualified RSU stock for up to five years after vesting, if the company has a written plan that offers RSUs or options to at least 80% of its US employees. Owners of 1% or more, the CEO and CFO, their family members and the four highest-paid officers are excluded. Ask your employer whether its plan qualifies.