RSU Vesting Tax Calculator (US)
Calculate tax owed when Restricted Stock Units (RSUs) vest. Most people are UNDERWITHHELD — find your shortfall before April 15.
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RSU Tax Guide for US Employees
How RSUs Are Taxed?
When RSUs vest, the FULL VALUE is taxed as ordinary income — exactly like a cash bonus. You don't have to sell to owe tax. Example: 200 shares vest at $150/share = $30,000 added to your W-2 income. This income is subject to: federal income tax (at YOUR marginal rate, not the 22% withheld rate), state income tax, Social Security (up to wage base), Medicare (with additional 0.9% over $200k single/$250k MFJ), and 3.8% NIIT if you sell at a gain in same year. After vesting, your cost basis equals the share price at vesting, which is what determines any further capital gain or loss when you eventually sell.
What do I need to know about The Withholding Trap?
Employers withhold federal tax on RSUs at the 22% supplemental wage rate (or 37% if you've already received $1M+ in supplemental wages this year). PROBLEM: most RSU recipients are in higher tax brackets. A high earner whose marginal rate is 35% only has 22% withheld — you OWE an extra 13% at tax time. On $100,000 of RSU vesting, that's $13,000 surprise tax bill in April. Most tech workers in their first year of significant RSU vesting are blindsided by this. Solution: increase W-4 withholding via your regular paycheck, or make quarterly estimated payments, to cover the gap between the flat 22% RSU withholding rate and your true marginal tax rate.
What's the difference between Sell-to-Cover and Same-Day Sale vs Hold?
Three common approaches at vest: (1) SELL TO COVER — automatic sell of just enough shares to cover the 22% withholding. Keep remaining shares. Tax exposure remains for the under-withheld portion. (2) SAME-DAY SALE — sell ALL vested shares immediately. Cost basis = vest price, so essentially $0 capital gain (maybe small loss from execution slippage). Use proceeds to pay full tax + diversify. RECOMMENDED for concentrated single-stock positions. (3) HOLD ALL SHARES — keep all vested shares. You owe the same tax regardless of whether you sell, so holding all shares means paying that tax bill out of other cash while keeping full exposure to a single company's stock price.
What's the key thing to understand about Concentrated Position Risk?
Single-stock concentration is the #1 wealth-destruction risk for tech, finance, and biotech employees. Examples: Enron employees with 401(k) in company stock lost retirement and job same day. Theranos, Yahoo, Sears, Lehman, Bed Bath Beyond employees similar stories. Rule of thumb: no single company stock should exceed 10-15% of your net worth. RSUs make this hard — you receive shares quarterly or annually, and they pile up. Strategy: same-day-sale at every vest, redeploy proceeds into diversified index funds, rather than letting an ever-growing single-stock position accumulate unchecked.
Why RSUs Are Taxed at Vesting, Not at Grant
Restricted Stock Units are taxed as ordinary income at the moment they vest — not when they're originally granted, and not when you eventually sell the shares — based on the fair market value of the shares on that specific vesting date. This is an important distinction from stock options, which generally aren't taxed until exercised. Because the taxable event and the exact dollar value are both locked in on vesting day, a volatile stock can create a tax bill based on a share price that may have fallen significantly by the time you actually sell, which is why many people choose to sell at least enough shares immediately at vesting to cover the resulting tax liability, rather than holding the full vested amount and hoping the price doesn't drop before a later sale.
The Second Tax Event: What Happens When You Sell the Vested Shares
Once RSUs vest and the ordinary income tax is applied, the shares' vesting-date value becomes your cost basis going forward — any further price movement between vesting and the eventual sale is taxed separately as a capital gain or loss, short-term or long-term depending on how long you hold the shares after vesting (not from the original grant date). This creates two distinct tax events on the same equity award: ordinary income tax at vesting on the full value, then capital gains tax at sale on any additional appreciation (or a capital loss if the price fell) between vesting and sale. Many employers under-withhold the ordinary income tax at vesting relative to the recipient's actual marginal tax bracket, which is why RSU recipients in higher brackets often find they owe additional tax at filing time beyond what was withheld at vesting.
The Net Investment Income Tax on Sale Gains
<p>Once RSU shares have vested and you later sell them, any gain between the vesting-date value (already taxed as ordinary income) and the eventual sale price is a capital gain, taxed separately from the vesting event itself. For high earners, there's an additional layer on top of ordinary capital gains tax: the Net Investment Income Tax, a flat 3.8% surtax that applies to net investment income — including capital gains — once modified adjusted gross income crosses a set threshold. Because a large RSU vesting event itself can push total income for the year well above that threshold, both the vesting income and any gains realized on shares sold afterward can end up exposed to NIIT in the same tax year, compounding an already sizeable tax bill. This is a frequently overlooked cost for employees at companies with large equity grants, and it's a reason some choose to sell vested shares relatively promptly rather than holding for further appreciation, since holding longer only increases the capital gain NIIT applies to.</p>
Worked Example: The Withholding Shortfall at Vesting
An employee has 500 RSUs vest when the stock is trading at $80/share, for a total vesting value of $40,000, which counts as ordinary W-2 income in that tax year. Employers are generally required to withhold tax at vesting, often using the flat federal supplemental wage withholding rate, commonly around 22% for amounts up to $1 million in a year, plus applicable state and FICA withholding. That 22% withholding on $40,000 is $8,800. But if the employee's actual marginal federal tax rate is higher — say 32%, because the RSU income stacks on top of their regular salary — their real federal liability on that $40,000 is closer to $12,800. The $4,000 shortfall doesn't disappear; it typically shows up as a larger-than-expected tax bill (or smaller refund) when the annual return is filed, which is why many people with significant RSU vesting are surprised by an unexpectedly large payment due in April unless they proactively adjust withholding or make estimated tax payments during the year.
Supplemental Withholding Rate vs Likely Marginal Tax Rate
| Taxable Income Band (approximate, combined with salary) | Typical Federal Marginal Rate | Flat Supplemental Withholding Rate | |
|---|---|---|---|
| Lower-to-middle income bands | Often 12-22% | Commonly around 22% (may roughly match or slightly over-withhold) | |
| Upper-middle bands | Often 24-32% | Commonly around 22% (likely under-withholds) | |
| High income bands | Often 35-37% | Commonly around 22% normally, but a higher flat rate can apply above $1 million of supplemental wages in a year |
Because the flat supplemental rate is a fixed administrative figure set by the IRS and not personalized to your actual bracket, check the current rate and compare it honestly to your own marginal tax bracket (which depends on total income including the vesting itself) each time a significant vesting event occurs, rather than assuming withholding alone has you covered.
Frequently Asked Questions
Is the stock price used for RSU taxation the price on the grant date or the vesting date?
The vesting date. RSUs are generally not taxed at grant, since the employee doesn't yet own anything unconditionally; the taxable event occurs at vesting, using the fair market value of the shares on that specific vesting date, regardless of what the stock was worth when originally granted.
What's the difference between sell-to-cover and selling all shares at vest?
Sell-to-cover automatically sells just enough of the newly vested shares to cover the withholding tax obligation, leaving the remainder as an ongoing stock holding. Selling all shares immediately at vest converts the entire vesting value to cash right away, avoiding any further concentration risk or price movement exposure from that point on, which many advisers recommend by default to avoid overweighting a single stock.
Do I pay tax again when I eventually sell RSU shares I kept after vesting?
Yes, but only on the gain or loss since vesting, not the whole value again. If the shares rise after vesting and you sell later, the difference between the sale price and the vesting-date value is a capital gain (short or long-term depending on holding period), taxed separately from the ordinary income tax already paid at vesting.