How do RSUs affect taxes?
Equity compensation
RSUs are taxed as ordinary income when they vest, then any subsequent gain or loss is taxed as a capital gain or loss when sold. Withholding is often insufficient at higher incomes.
At vest
The full fair-market value of the vesting shares is treated as wages. Your employer typically sells or withholds enough to cover supplemental federal withholding (often 22%), Social Security and Medicare where applicable, and state withholding.
After vest
Once vested, shares behave like any other taxable holding. Selling them creates capital gain or loss based on the difference between sale price and vest-day price.
The withholding gap
Because supplemental withholding is often 22% but high earners frequently owe 32-37% federally, RSU income can quietly create an underpayment that shows up at tax time. Quarterly estimateds or extra W-4 withholding can close the gap.
What people often get wrong
- Assuming the company withheld 'enough' for taxes
- Letting concentration build without rebalancing
- Forgetting Net Investment Income Tax and additional Medicare surtax at higher incomes
What to think about next
- Project your full-year income including all expected vests.
- Compare projected taxes to year-to-date withholding and estimateds.
- Adjust withholding via the W-4 or make estimated payments if there is a meaningful gap.
When to consider working with a CFP®
Working with a CFP® can help when these decisions feel intertwined, taxes, investments, cash flow, and life goals tend to move together, and a planning relationship can offer structure, prioritization, and accountability over time.
Frequently Asked Questions
Are RSUs taxed twice?
No. They are taxed as wages at vest, and then any additional gain or loss after vest is taxed separately as capital gain or loss.
What about ISOs and NSOs?
Those are different instruments with different rules. Stock options have separate exercise, AMT, and holding considerations.
Talk to a CFP® who works with high earners.
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Related Questions
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