Equity taxes · RSUs
RSU taxes: how they work and why withholding can fall short
Your employer withheld shares. Was it enough?
When your RSUs vest, some of the shares usually go toward taxes. That withholding is a payment toward your tax bill, not the bill itself, and it may not cover the full amount. Here’s how RSU taxes work, why withholding can come up short, and how to check your own numbers.
Vested Tax · Reviewed by a licensed CPA · Updated October 2026 · Covers tax year 2026
The short answer
RSUs (restricted stock units) are taxed as wage income when they vest and the shares are delivered to you. The taxable amount is the number of shares times the share price that day, and it appears on your W-2 like salary (IRS Publication 525). Many employers withhold federal tax on that income at a flat 22%, or 37% on one employer’s supplemental wages above $1 million in a year. If your income is taxed above 22%, that withholding can leave a shortfall unless other withholding or estimated payments cover it. When you later sell the shares, only the price change since vest is a capital gain or loss.
Event
How it’s taxed (typical public-company RSUs)
Grant
No tax
Vest and delivery
Share value is wage income, on your W-2
Sale
Capital gain or loss: sale price minus the value at vest
This describes RSUs that deliver shares when they vest, which is how most public-company RSUs work. Private-company and deferred-delivery RSUs can be taxed later; see private-company RSUs below.
Why withheld shares might not cover your tax bill
On each vest date, the value of the vested shares is subject to federal and state income tax, Social Security (up to the annual wage base) and Medicare, just like your paycheck. Your company usually covers the withholding in one of these ways:
Net settlement
The company keeps back some of the shares and pays the tax in cash.
Sell-to-cover
Your broker sells some of the shares and sends the proceeds to pay the tax.
Paying in cash
Some plans let you pay the withholding yourself and keep every share.
With net settlement or sell-to-cover, fewer shares land in your account than actually vested. Paying in cash keeps all the shares, but you need the cash ready on the vest date. None of these changes how much tax you owe; they only change how the withholding is paid.
The amount withheld is usually a flat rate. Employers treat RSU income as “supplemental wages” and many withhold federal tax at a flat 22%, without looking at your total income (IRS Publication 15). For employees whose RSU income is taxed in the 32%, 35% or 37% federal brackets, every vested dollar taxed above 22% is underwithheld.
State withholding can come up short the same way. California, for example, withholds 10.23% on RSU income, while its top rate is 12.3%, plus 1% on income over $1 million.
Can you have more withheld from your RSUs?
Some plans let you choose a higher withholding rate for vested RSUs than the default 22%, which shrinks the shortfall at the source. Check your equity portal or plan documents to see whether yours does. If it doesn’t, you can still increase the withholding on your salary with a new W-4, or make estimated payments.
The shortfall tends to be biggest when:
Your stock price rose.
Bigger vests mean more income taxed above 22%.
You’re in a big vest year,
such as a new-hire grant cliff, a refresher stacking on top, or an IPO.
You’re married and both work.
The flat 22% rate ignores your spouse’s income and your W-4 settings.
You changed jobs mid-year.
Each employer withholds without knowing what the other paid you.
Example: a $180,000 vest year
Illustrative and simplified. Assumes a single filer in tax year 2026, the $16,100 standard deduction, no pretax deductions, other income or credits, and salary withholding that matches the tax on the salary. Payroll taxes and state tax are left out.
Priya: $220,000 salary, $180,000 of RSUs
About $22,000 not withheld
Federal income tax on the RSUs that withholding didn’t cover
Withheld
Her employer withholds 22% federal on the RSUs: $39,600.
Actual tax
With $400,000 of wages, all of that RSU income falls in the 32% and 35% federal brackets. The additional federal income tax from the RSUs is about $61,400.
Shortfall
About $22,000 of federal income tax not covered by withholding. Unless she covers it during the year, she’ll owe it when she files, and she may also owe an underpayment penalty. State tax can add to it.
The salary was withheld correctly. The shortfall came from the RSUs.
Want to see where you stand? Check your own withholding with the free VestedTax Planner →
Check your own RSU withholding with the VestedTax Planner
Our free Planner walks you through four short steps (about you, your pay, your RSUs, your estimate) to estimate your 2026 federal tax bill and show whether your withholding is enough.
What you’ll need
Your latest paycheck. Upload it, or type the numbers in. Files are read on your device, not sent to a server.
Your upcoming vest details, from your equity portal.
Your filing status: single or married filing jointly.
What you’ll get
An estimate of your 2026 federal tax bill.
Whether your withholding is on track to cover it.
Free, no login. Your figures stay in your browser and clear when you refresh. The Planner covers federal tax only (state tax isn’t included), and its estimate isn’t reviewed by a CPA.
Owing at tax time vs. owing a penalty
These are two different things. A balance due is tax you still owe when you file. An underpayment penalty is extra, charged when you didn’t pay enough during the year. You can owe a balance and still owe no penalty, as long as your withholding and estimated payments met a safe harbor (IRS Publication 505).
The federal safe harbor
You generally avoid a federal underpayment penalty if your withholding and timely estimated payments cover the smaller of:
90% of this year’s tax
100% of last year’s tax, or 110% if last year’s AGI was over $150,000 ($75,000 if married filing separately)
Timing matters as well as the total. For tax year 2026, the last estimated payment is due January 15, 2027. A late payment in January doesn’t fix an underpayment from an earlier quarter, unless your income was concentrated late in the year and you use the annualized income method on Form 2210.
Extra withholding works differently
Federal withholding is treated as paid evenly through the year, no matter when it was actually taken out. So increasing your W-4 withholding in the last few months of the year can cover a shortfall and reduce penalties in a way a late estimated payment can’t.
California above $1 million
If your California AGI is $1 million or more ($500,000 if married or RDP filing separately), you can’t use last year’s tax for California’s safe harbor. Your estimated payments must be based on 90% of this year’s tax. California’s installments also follow a different schedule: 30%, 40%, 0% and 30% (FTB estimated tax payments).
Selling your shares doesn’t tax the whole amount again
Your cost basis in RSU shares is their value on the vest date, which is the amount you were already taxed on as wages.
Example
$10,000
100 shares vest at $100. You report $10,000 of wages, and that’s your basis.
$10,500
You later sell the shares for $10,500.
$500
Your capital gain, before selling costs. Not $10,500.
The gain is short-term if you held the shares for one year or less, and long-term if you held them longer.
The broker’s Form 1099-B sometimes shows the basis as $0 or leaves it blank. If a return is filed that way, the same income is taxed twice. Use your stock-plan records to report the correct basis on Form 8949 (IRS Instructions for Form 8949). It’s a common error we see on returns prepared with consumer software. ESPP shares have their own basis rules.
Private-company RSUs, moving states, and IPOs
Private-company RSUs
Many private-company RSUs are “double-trigger”: they’re taxed only once both a time-based vesting condition and a liquidity event, such as an IPO or acquisition, are met, and the shares are delivered. When that happens, several years of vesting can become taxable at once. The exact timing depends on your award’s terms, so read your plan documents or have them reviewed before the event.
IPO and big catch-up vests
A first vest after an IPO can put a large amount of income on one paycheck. Withholding is typically 22% federal on that income, or 37% on supplemental wages above $1 million from that employer. Either rate can be well below your actual tax, so plan for the difference before the vest.
Moving states
If you move while holding unvested RSUs, your old state may still tax part of each vest. California, for example, generally taxes RSU income based on the share of workdays between grant and vest that you spent working in California.
Want a CPA to check it?
A large vest, two jobs, a move between states or a private-company liquidity event can make a quick estimate harder to rely on.
Tax projection
We review your expected income, vests to come, deductions, withholding and estimated payments for the full year. You get a written report with your projected balance and recommended payment amounts and dates. One flat fee.
Tax preparation & filing
We prepare your return with RSU cost basis reported correctly, so you’re not taxed twice on the same income.
Year-round planning
We check in around your vests during the year, update your withholding and estimated payments as your stock price moves, and file your return at year-end.
Flat fees, no hourly billing.
RSU tax questions
Are RSUs taxed when they’re granted or when they vest?
RSUs are taxed when they vest and the shares are delivered, not when they’re granted. On each vest date, the value of the vested shares is taxed as ordinary wage income and included on your W-2. Some private-company RSUs aren’t taxed until a liquidity event, such as an IPO or acquisition.
Why do I owe tax on my RSUs if shares were withheld?
RSU withholding is usually a flat 22% federal rate, which is a payment toward your tax, not the final amount. If your RSU income is taxed in a higher bracket, such as 32% or 35%, the withheld shares don’t cover the full tax, and the difference is due when you file unless other withholding or estimated payments cover it.
Does selling RSUs right away avoid the tax?
Selling RSU shares right after they vest doesn’t avoid the tax. The value at vest is still wage income on your W-2. Selling immediately only means there’s little or no capital gain or loss, because the sale price is close to your cost basis.
Are RSUs taxed twice?
RSUs shouldn’t be taxed twice, but it happens when the cost basis is reported wrong. You’re taxed on the shares’ value at vest, and that value becomes your cost basis. If your broker’s Form 1099-B shows a $0 or blank basis and the return uses it, the same income is taxed again when you sell.
Can I file an 83(b) election for RSUs?
You can’t file an 83(b) election for RSUs. An 83(b) election applies to restricted stock, meaning actual shares you receive up front that are subject to vesting. RSUs are a promise to deliver shares later, so the election isn’t available.
Do I need to make estimated tax payments for RSUs?
You may need estimated payments or extra withholding for RSUs if your withholding won’t meet a safe harbor: 90% of this year’s tax or 100% of last year’s (110% if last year’s AGI was over $150,000). Increasing W-4 withholding late in the year counts as paid evenly through the year, which a late estimated payment doesn’t.
What changes for private-company RSUs?
Private-company RSUs are often double-trigger, meaning they’re taxed only after both a time-based vesting condition and a liquidity event, such as an IPO or acquisition, are met. Several years of vesting can then become taxable at once. The exact rules depend on your award’s terms.
How are RSUs taxed if I move to another state?
If you move while RSUs are vesting, the state where you worked during the vesting period can still tax part of the income. California generally allocates RSU income by the workdays between grant and vest that you spent working in California.
When should I talk to a CPA about my RSUs?
The best time to talk to a CPA about RSUs is before a large vest, an IPO or acquisition, a move to another state, or the fourth quarter of a year with big vests. That leaves time to adjust withholding or estimated payments before the year ends.
This page is general information, not tax advice for your situation. Tax rules change, and the right answer depends on your full picture.