Step-by-step · 5 min read
RSUs: what to do at every vest
Restricted stock units are a promise from your employer to give you shares once you have worked there long enough. When the shares are delivered, at vest, they are taxed as wages, whether you sell them or not.
Your employer withholds tax at vest, usually by keeping back some of the shares. For most tech salaries the default rate is too low, and the gap only shows up in April. This guide walks through what happens at each vest, how to close the gap and what to do with the shares you keep.
- Who it fits
- Anyone paid in restricted stock units at a public company.
- Usually not a fit
- Holders of private-company RSUs that only settle at an IPO or sale (the same rules apply, but the timing is different).
- Figures
- 2026 tax year
The key rule
The market value of your shares on the vest date is ordinary income, reported on your W-2 like salary. That value becomes your cost basis. Only the change in price after the vest date is a capital gain or loss.
How it works
On each vest date, your broker records the number of shares that vested and the market price. Shares × price is your income. Your employer then withholds federal, state, Social Security and Medicare tax, usually by selling or keeping back some of the shares (called "sell to cover" or "net share settlement").
The shares left over are yours. Their basis is the vest-date price, so if you sell them the same day you have almost no gain. If you hold them, any later rise or fall is a capital gain or loss: short-term if you sell within a year of vest, long-term after that.
The taxes that apply at vest:
- Federal income tax, usually withheld at a flat 22%, and 37% on supplemental wages above $1 million in a calendar year.
- State income tax, at the state's supplemental rate. California, for example, withholds 10.23% on stock compensation.
- Social Security at 6.2%, until your total wages for the year reach $184,500 for 2026.
- Medicare at 1.45%, plus an extra 0.9% on wages above $200,000.
7 steps
Find your vest schedule
Log in to your equity portal (Schwab, E*TRADE, Fidelity and Shareworks are the common ones) and export your upcoming vests for the year. Note the number of shares and dates for each grant. Monthly and quarterly vests, plus new refresh grants, add up quickly.
Estimate the year’s RSU income
Multiply the shares vesting this year by a realistic share price. We usually use today's price and check it again mid-year. Add the result to your salary and bonus. That total, not your salary alone, sets your tax bracket.
Compare withholding with your real rate
Federal withholding at 22% matches the 22% bracket. If your top rate is 32%, 35% or 37%, every vest leaves a gap of 10 to 15 cents on the dollar. Once your income passes $1 million, the 37% rate applies only to the part above $1 million, so a gap can remain on the rest.
Choose how to close the gap
There are three common ways. Pick whichever is easiest for you to stick to:
- Higher RSU withholding. Some employers let you elect a higher federal rate on stock income, up to 37%. Check your equity portal or ask payroll.
- More salary withholding. Submit a new W-4 with an extra amount per paycheck on line 4(c).
- Estimated payments. Pay quarterly through IRS Direct Pay or your IRS online account. See the withholding guide for dates.
Decide what to keep
Holding vested RSUs is the same as taking a cash bonus and using it to buy your company's stock. Ask yourself whether you would buy that much with cash. If not, selling at vest and diversifying usually makes sense. Selling right away creates little or no extra tax because the price has barely moved.
Write down a selling rule
For example: sell everything at vest, sell half, or sell anything that pushes company stock above 10% of your net worth. A written rule stops you from drifting into a concentrated position one vest at a time.
Keep your records
Save each vest confirmation and download your broker's supplemental tax statement each February. You will need them to correct the cost basis on your 1099-B, so you are not taxed twice.
Example 1
A typical gap
You earn $230,000 in salary, and 400 shares vest during the year at an average of $250, which is $100,000 of RSU income. Your employer withholds 22% federal, or $22,000.
With $330,000 of wages, a single filer is in the 35% bracket at the top. The extra tax caused by the RSUs is about $32,000 to $34,000 federal, so you are roughly $10,000 to $12,000 short before state tax.
Example 2
Selling at vest
100 shares vest at $200, and your broker keeps back 40 for taxes. You sell the remaining 60 the same afternoon at $201. Your W-2 already includes $20,000. The sale creates a $60 short-term gain (60 × $1). That is the only additional tax from selling.
Common mistakes
- Filing your 1099-B as it is. It often shows a cost basis of $0 for RSU shares, which doubles the tax. See the cost basis guide.
- Selling company stock at a loss within 30 days before or after a vest. The new vest counts as a purchase, so the loss becomes a wash sale.
- Assuming a refund means you planned well. A big refund usually means you held back too much; a big balance due means the gap was never closed.
- Holding shares only to avoid tax. Selling at vest costs almost nothing in tax; the risk of holding is market risk.
Key dates
- Each vest date
- Income is recognized and withholding happens.
- April, June, September, January 15
- Federal estimated tax payments, if you use them.
- Late January
- Your W-2 arrives, including all RSU income.
- Mid-February
- Your broker’s 1099-B and supplemental statement are available.
Questions we hear
Why is my RSU income already on my W-2?
Because RSUs are taxed as wages. Your W-2 box 1 includes your salary and the value of every vest. Many employers also list it in box 12 or 14 as a code such as "RSU".
Do I owe tax if I never sell the shares?
Yes. The tax is triggered by the vest, not the sale. Selling later only adds tax if the price has gone up since vest.
Should I move shares from my company’s broker to my own account?
You can, once they are vested. Make sure the cost basis moves with them, and keep the vest records in case it does not.
What to send us
- Your vest schedule for the year
- Your most recent pay stub
- Any sales you made or plan to make
- The 1099-B and supplemental statement each February
Upload them to your client portal.
General education for TaxSquad clients, not advice for your situation. Rules and figures change. Talk to us before acting on this guide.