Restricted Stock Units, commonly known as RSUs, are a popular form of equity compensation in the United States. Employers use RSUs to attract employees, reward performance, and encourage workers to remain with the company over the long term.
But receiving RSUs can create questions that ordinary salary compensation does not. When are RSUs taxed? How much tax do you pay on RSUs? Are RSUs taxed as ordinary income or capital gains? What happens when you sell the shares?
The answer depends on what happens at different stages of the RSU lifecycle.
For a typical U.S. employee, RSU tax generally involves two separate tax events:
- Taxable compensation when the RSUs are settled and shares are transferred to you, under the terms of the award and applicable tax rules.
- Capital gain or loss when you later sell the shares, based on the difference between your adjusted tax basis and the sale price.
The IRS explains that an RSU generally represents a promise to provide stock or cash in the future rather than an immediate transfer of stock. For a typical stock-settled RSU, the taxable event generally occurs when the shares are transferred to the employee.
This guide explains RSU tax in the United States, including federal income tax, payroll withholding, W-2 reporting, capital gains, tax basis, tax withholding methods, state taxes, and practical examples.
Important disclaimer: This article provides general educational information about U.S. federal taxation. It is not tax, legal, investment, or financial advice. RSU taxation can vary depending on the award agreement, employment circumstances, state and local tax rules, residency, and other factors. Consult a qualified tax professional regarding your individual situation.
What Are RSUs?
A Restricted Stock Unit (RSU) is an equity compensation award that gives an employee a contractual right to receive company stock, or sometimes a cash equivalent, after specified conditions are satisfied.
The most common condition is continued employment through a vesting date.
For example, an employer could grant an employee:
4,000 RSUs vesting over four years.
The company’s vesting schedule could provide:
- 1,000 RSUs in Year 1
- 1,000 RSUs in Year 2
- 1,000 RSUs in Year 3
- 1,000 RSUs in Year 4
The actual schedule can vary. Some employers use monthly or quarterly vesting, while others use annual, cliff, or performance-based vesting.
Importantly, an RSU grant is generally not the same thing as receiving the underlying stock immediately.
The IRS describes RSUs as promises to pay stock or cash in the future. For stock-settled RSUs, the shares are transferred when the RSUs vest and the employer initiates the transfer.
When Are RSUs Taxed?
This is the most important question for anyone researching RSU tax.
For a typical stock-settled RSU arrangement, the employee generally recognizes compensation income when the shares are transferred after the applicable vesting conditions are satisfied.
The IRS explains that RSUs generally aren’t taxable at the grant date because the employee has not yet received actual property. When the stock is transferred, its fair market value is generally included in the employee’s income.
This means that receiving an RSU grant usually does not mean you immediately owe income tax on the full value of the grant.
Instead, taxation generally occurs when the RSUs become taxable under the terms of the arrangement.
Example
Suppose your employer grants you:
1,000 RSUs
At the grant date, the stock is worth $20.
The theoretical value of the grant is:
1,000 × $20 = $20,000
However, you generally don’t simply report $20,000 of taxable wage income at the grant date merely because the company granted you the RSUs.
Three years later, suppose the 1,000 shares vest and are transferred when the stock is worth $50.
The value at that point is:
1,000 × $50 = $50,000
That $50,000 will generally be treated as compensation income for a typical employee RSU arrangement.
The tax is therefore generally based on the value when the taxable transfer occurs—not necessarily the stock price when the RSUs were originally granted.
RSU Tax: Grant Date vs. Vesting Date vs. Settlement Date
Understanding the different dates associated with an RSU can make the tax rules much easier to understand.
1. Grant Date
The grant date is when your employer awards the RSUs to you.
At this point, you generally have a contractual right to receive shares in the future if the applicable conditions are satisfied.
For typical RSUs, there is generally no immediate federal income tax simply because the award was granted.
2. Vesting Date
The vesting date is when the applicable vesting conditions are satisfied.
For many employee RSUs, continued employment is the primary condition.
However, vesting and actual transfer or settlement can occur under different arrangements, so employees should look at their award documents rather than assuming the dates are always identical.
3. Settlement or Transfer Date
This is when the shares are actually delivered to the employee in a stock-settled arrangement.
The IRS explains that the stock becomes transferred for relevant tax purposes when the employer initiates payment of the shares.
This distinction is important because the fair market value of the stock at the taxable transfer generally determines the amount of compensation income.
How Much Tax Do You Pay on RSUs?
There isn’t one universal RSU tax rate.
For U.S. employees, the value of taxable RSUs is generally treated as compensation and can be subject to federal income tax at the employee’s applicable marginal rates, along with applicable employment taxes.
Your actual federal income tax depends on factors such as:
- Filing status
- Taxable income
- Other wages and income
- Deductions
- Credits
- The amount of RSU income
- Other circumstances affecting your tax return
The United States uses a progressive federal income tax system, meaning that moving into a higher tax bracket does not mean all of your income is taxed at the higher rate. Only the applicable portion falls into that bracket.
For 2026, the federal individual income tax rates remain 10%, 12%, 22%, 24%, 32%, 35%, and 37%, with the applicable thresholds depending on filing status.
Therefore, it would be inaccurate to say that every employee pays a fixed percentage of RSU value in federal income tax.
Are RSUs Taxed as Ordinary Income?
Generally, yes, the value recognized when typical employee RSUs become taxable is treated as ordinary compensation income, rather than capital gain.
The IRS describes equity compensation such as RSUs as wages subject to federal income tax withholding.
For example, suppose 500 RSUs settle when the stock is worth $80 per share.
The taxable compensation would generally be:
500 × $80 = $40,000
That $40,000 generally becomes part of your compensation income.
It is different from a capital gain generated by selling stock later.
This distinction is extremely important.
RSU Tax Withholding
When your RSUs settle, your employer generally needs to account for applicable tax withholding.
Depending on the company’s procedures, your employer may withhold some shares rather than giving you the entire number of vested shares.
This is commonly called share withholding or net settlement.
Example
Suppose:
- 1,000 RSUs vest
- Stock price = $50
- Gross value = $50,000
Assume the employer needs to withhold $15,000 for applicable taxes and other required payroll deductions.
Instead of receiving all 1,000 shares, the employer could withhold a portion of the shares and deliver the remainder.
At a simplified $50 share value:
$15,000 ÷ $50 = 300 shares
You could therefore receive approximately:
700 shares
while 300 shares are withheld to satisfy applicable obligations.
The actual calculation can involve federal income tax withholding, Social Security, Medicare, state and local taxes, and the employer’s payroll procedures.
The IRS has specifically addressed arrangements in which employers withhold shares to satisfy income and employment tax withholding obligations.
Is RSU Tax Withholding the Same as Your Final Tax?
No.
This is one of the most important things to understand about RSU tax.
The amount withheld by your employer is generally a tax withholding, not necessarily the exact amount of tax you ultimately owe.
Your final federal tax liability is determined when you file your tax return.
For example, if $10,000 is withheld from your RSU compensation but your final tax liability is higher, you may owe additional tax when filing.
If more was withheld than your final liability, you may receive a refund, assuming you otherwise qualify for one.
Therefore, employees should not assume that the shares withheld at vesting represent the exact amount of tax ultimately owed.
What Is the Federal Withholding Rate on RSUs?
RSU compensation is generally treated as supplemental wages for payroll withholding purposes, although the exact withholding calculation depends on how the employer pays and reports the compensation.
For 2026, the IRS states that the federal income-tax withholding rate for separately identified supplemental wages is generally 22%, with a 37% rate applying to supplemental wages exceeding $1 million during the calendar year under the applicable rules.
However, this does not mean your final RSU tax rate is automatically 22%.
The 22% figure is generally a withholding mechanism.
Your ultimate federal income tax liability is calculated on your tax return based on your total taxable income and applicable tax rules.
This distinction is especially important for high-income employees.
If your marginal federal tax rate is higher than the withholding rate applied to your RSUs, additional tax may be due when you file.
RSUs and Social Security and Medicare Taxes
RSUs can also be subject to employment taxes.
The IRS states that equity compensation such as restricted stock and RSUs can constitute wages subject to federal income tax withholding.
Depending on the circumstances, taxable RSU compensation can therefore affect:
- Federal income tax withholding
- Social Security tax
- Medicare tax
- Additional Medicare Tax, where applicable
Social Security taxation can be affected by the annual Social Security wage base.
Medicare taxation works differently because there is no general wage cap for the regular Medicare tax, and an additional Medicare tax can apply to wages above statutory thresholds.
Because payroll calculations can be complicated, employees should review their paystub and W-2 rather than trying to calculate withholding solely from the number of shares received.
How Are RSUs Reported on a W-2?
Your employer generally reports taxable compensation from RSUs on Form W-2.
The IRS explains that employers report taxable compensation and wages on Form W-2.
For a typical RSU transaction, the value recognized as compensation may be reflected in your W-2 wage amounts.
The exact boxes and reporting details depend on the circumstances and the employer’s payroll reporting.
You should carefully compare:
- Your RSU vesting statement
- Your payroll statement
- Your W-2
- Your brokerage statement
- Your Form 1099-B, if applicable
Keeping these records is particularly important when you later sell the shares.
What Happens When You Sell RSU Shares?
RSU taxation doesn’t necessarily end when the shares vest.
After your RSUs settle, you own the shares.
If you later sell those shares, you generally calculate a capital gain or capital loss based on your adjusted tax basis and the sale proceeds.
The basic calculation is:
Sale proceeds − adjusted tax basis = capital gain or loss
For typical RSUs, the amount already included in your income when the shares were transferred generally becomes part of your tax basis.
This prevents the same value from being taxed again as compensation.
Example of RSU Tax and Capital Gains
Suppose you receive:
1,000 RSUs
When the shares settle:
Stock price = $40
Your compensation income is approximately:
1,000 × $40 = $40,000
Assume the shares are also treated as having a tax basis of approximately $40 per share.
Your total basis is therefore:
$40,000
Six months later, you sell the shares for:
$55 per share
Your sale proceeds are:
1,000 × $55 = $55,000
Your capital gain is approximately:
$55,000 − $40,000 = $15,000
The first $40,000 was compensation income when the shares were transferred.
The additional $15,000 is generally a capital gain from the later sale.
Short-Term vs. Long-Term Capital Gains on RSUs
Once you own the shares, the length of time you hold them can affect the tax treatment of the subsequent gain or loss.
The IRS generally classifies capital gains as:
- Short-term: property held for one year or less
- Long-term: property held for more than one year
For RSU shares, the relevant holding period generally begins after you acquire the shares—not from the original RSU grant date.
This is an important distinction.
Example
Suppose:
- RSUs were granted in January 2025
- RSUs vested and shares were transferred in January 2026
- Shares were sold in July 2026
You generally cannot count the entire period from January 2025 as the holding period for the shares.
The relevant holding period generally starts after the shares are acquired.
Therefore, a sale only six months after the shares are transferred would generally produce a short-term gain or loss if there is a gain or loss.
The IRS explains that the holding period for investment property generally starts on the day after acquisition and that property held for one year or less produces short-term treatment.
Why Holding RSUs for More Than One Year Can Matter
Long-term capital gains can receive different federal tax treatment from short-term gains.
Short-term capital gains are generally taxed at ordinary income tax rates.
Long-term capital gains can qualify for preferential federal capital gains rates, subject to the applicable rules and the taxpayer’s income.
However, holding employer stock for a longer period also creates greater exposure to the company’s stock price.
This creates an important trade-off:
Potential tax benefit vs. investment risk.
You should not automatically hold RSU shares for more than one year simply to seek long-term capital-gain treatment.
The stock price could decline significantly during that period.
Does the RSU Grant Price Matter for Taxes?
Usually, the original grant-date stock price is not the most important number for calculating the compensation income created when RSUs settle.
Suppose:
- Grant-date value = $20
- Vesting/settlement value = $50
The relevant compensation amount for a typical stock-settled RSU is generally based on the value when the shares are transferred.
Therefore:
1,000 × $50 = $50,000
rather than:
1,000 × $20 = $20,000
The grant price can still be useful for understanding the potential appreciation of your equity compensation, but it generally isn’t the number you should automatically use to determine taxable compensation.
What Is the Tax Basis of RSU Shares?
Tax basis is extremely important when you sell RSU shares.
For a typical RSU, the amount already included as compensation when the shares are transferred generally becomes the starting point for calculating the tax basis.
For example:
- RSU shares received: 500
- Value per share at transfer: $100
- Compensation income: $50,000
- Approximate basis: $50,000
If you later sell the shares for $110 each:
Sale proceeds = $55,000
Basis = $50,000
Capital gain = $5,000
Keeping accurate basis records helps prevent you from accidentally reporting the entire sale proceeds as taxable gain.
RSUs and Form 1099-B
When you sell publicly traded shares through a brokerage account, you may receive Form 1099-B or, for transactions reported under the newer reporting framework, Form 1099-DA.
The IRS notes that basis information may be reported by brokers for covered securities, but taxpayers should still review the information and make appropriate basis adjustments when necessary.
This is particularly important with employer stock compensation.
The amount shown by a broker may not always reflect the full tax basis you need to use after accounting for compensation already included in income.
If you don’t properly adjust your basis, you could potentially pay tax twice on the same economic amount.
How Do You Report the Sale of RSU Shares?
The sale of RSU shares generally involves reporting the capital transaction on your federal tax return.
Depending on the transaction, taxpayers generally use:
- Form 8949
- Schedule D
- Form 1040
The IRS instructions for Form 8949 explain that taxpayers generally separate short-term and long-term capital transactions and use the applicable parts of Form 8949 and Schedule D.
You should keep:
- Trade confirmation
- 1099-B or 1099-DA
- RSU vesting statement
- W-2
- Payroll statement
- Share withholding information
- Basis information
These documents can be important if the broker’s reported basis does not match the amount you need to report.
Do RSUs Get Taxed Twice?
A common misconception is that RSUs are automatically taxed twice.
They generally aren’t, provided the transaction is reported correctly.
There are usually two different taxable components:
First Tax Event: Compensation
When the RSUs become taxable, their value is generally treated as compensation income.
Second Tax Event: Capital Gain or Loss
When you later sell the shares, you generally pay tax only on the change in value after the shares were acquired.
Example
RSUs settle at:
$50 per share
You later sell at:
$65 per share
The initial $50 is generally compensation income.
The additional:
$65 − $50 = $15
is generally the capital gain per share.
So, you’re not normally paying tax twice on the same $50.
Are RSUs Subject to State Income Tax?
Possibly.
Federal tax rules are only part of the picture.
States can have their own income tax systems and rules governing equity compensation.
For example, an employee living in a state with an individual income tax may have state tax consequences when RSUs become taxable.
Multi-state employees can face additional complexity.
Consider an employee who:
- Works in multiple states
- Moves during the vesting period
- Works remotely
- Receives RSUs over several years
The state tax treatment may depend on where services were performed and the applicable state rules.
Therefore, employees who relocate or work across state lines should not assume that federal RSU tax rules completely determine their state tax liability.
RSU Tax for Employees Who Move States
Moving from one state to another can create complicated equity compensation issues.
For example, suppose an employee receives RSUs while living and working in State A and later moves to State B before the RSUs vest.
Depending on the states involved and the applicable rules, both states may have claims to some portion of the compensation.
The specific allocation can depend on:
- The vesting period
- Work location
- State residency
- State sourcing rules
- Award terms
- Timing of the move
This is an area where professional tax advice can be particularly valuable.
RSU Tax for High-Income Employees
High-income employees should pay special attention to RSU taxation.
A large RSU vest can significantly increase annual taxable income.
For example, an employee who normally earns $200,000 in salary might receive an additional $150,000 of RSU compensation in the same year.
That additional compensation can affect:
- Marginal federal tax rate
- State income taxes
- Medicare taxes
- Estimated tax requirements
- Net Investment Income Tax considerations
- Other income-based tax calculations
Can RSU Sales Be Subject to the 3.8% Net Investment Income Tax?
Potentially.
The Net Investment Income Tax (NIIT) is a separate 3.8% tax that can apply to certain investment income for individuals whose modified adjusted gross income exceeds statutory thresholds.
The IRS currently identifies thresholds of:
- $200,000 for single or head-of-household taxpayers
- $250,000 for married taxpayers filing jointly
- $125,000 for married taxpayers filing separately
The tax generally applies to the lesser of net investment income or the amount by which MAGI exceeds the applicable threshold.
The treatment of the initial RSU compensation and later investment gain should not be confused.
Generally, wages themselves are not net investment income, while a later gain from selling investment property can potentially be relevant to NIIT.
High-income taxpayers should therefore consider the interaction between RSU compensation, other investment income, and the NIIT.
What Is Sell-to-Cover for RSUs?
Sell-to-cover is a common method companies use to handle tax withholding when RSUs settle.
Instead of withholding shares directly, the company or its brokerage administrator may sell enough shares to generate proceeds used to satisfy applicable tax withholding obligations.
For example:
- 1,000 RSUs vest
- Shares are worth $50
- Gross value = $50,000
- Shares worth approximately $15,000 are sold to cover withholding
The employee receives the remaining shares or sale proceeds.
The exact mechanics depend on the employer’s plan and brokerage provider.
Sell-to-cover can be convenient because the employee doesn’t necessarily have to provide cash from another source to satisfy withholding.
However, employees should understand exactly how their employer handles withholding and whether the transaction generates a separate reportable sale.
Can You Choose How Much Tax Is Withheld From RSUs?
Usually, employees have limited control over mandatory payroll withholding associated with equity compensation.
The employer must follow applicable federal and state payroll rules.
However, an employee may be able to adjust overall tax withholding on wages or make estimated tax payments depending on their situation.
This can matter if the standard withholding applied to RSU income is lower than the employee’s eventual effective or marginal tax liability.
A tax professional can help determine whether additional withholding or estimated payments may be appropriate.
What Happens to RSUs If You Leave Your Job?
The treatment of RSUs after employment ends depends on your specific award agreement.
Unvested RSUs
Unvested RSUs are commonly forfeited when employment ends, although some plans provide special treatment for retirement, disability, death, or other qualifying circumstances.
Vested RSUs
If shares have already been transferred to you, you generally own them subject to applicable restrictions.
If the RSUs have vested but haven’t yet settled, the treatment depends on the terms of the arrangement.
Review Before Resigning
Before leaving an employer, review:
- Vesting dates
- Upcoming vesting events
- Settlement dates
- Post-termination provisions
- Company trading restrictions
- Tax withholding
- Private-company liquidity restrictions
A resignation shortly before a major vesting date can have significant financial consequences.
Are RSUs Better Than Stock Options?
RSUs and stock options are different types of equity compensation.
An RSU generally provides shares after applicable vesting and settlement conditions are satisfied without requiring the employee to pay a traditional exercise price.
A stock option gives the employee a right to purchase shares at a specified exercise price.
For example:
RSU
Stock value at settlement: $50
Number of shares: 1,000
Gross value: $50,000
Stock Option
Exercise price: $30
Market price: $50
Number of options: 1,000
Intrinsic spread:
($50 − $30) × 1,000 = $20,000
The tax treatment is also different.
The IRS provides separate rules for statutory and nonstatutory stock options.
Whether RSUs or options are more attractive depends on the company’s prospects, award terms, tax consequences, liquidity, risk tolerance, and other factors.
RSU Tax Example: Complete Walkthrough
Let’s look at a simplified example.
Sarah works for a U.S. technology company.
Her employer grants her:
2,000 RSUs
The RSUs vest over four years.
After two years, 1,000 RSUs vest and settle.
The stock price is:
$60 per share
Step 1: Calculate compensation
1,000 × $60 = $60,000
Sarah generally has approximately $60,000 of compensation income from the RSU settlement, subject to the applicable rules.
Step 2: Withholding
The employer withholds shares or cash to satisfy applicable tax withholding.
Assume, purely for illustration, that the combined withholding and payroll deductions amount to $18,000.
The actual withholding could be different.
Step 3: Shares received
If the employer uses share withholding:
$18,000 ÷ $60 = 300 shares
Sarah receives approximately:
700 shares
Step 4: Tax basis
Her basis in the shares is generally based on the amount included as income.
Approximately:
1,000 × $60 = $60,000
Step 5: Later sale
Suppose Sarah sells the 700 remaining shares later for $75.
Sale proceeds:
700 × $75 = $52,500
The portion of the basis associated with those 700 shares would generally be approximately:
700 × $60 = $42,000
Potential capital gain:
$52,500 − $42,000 = $10,500
The actual tax calculation can be more complicated, particularly when brokerage reporting, withholding, transaction costs, or multiple lots are involved.
Common RSU Tax Mistakes
Mistake 1: Assuming the grant is taxable immediately
A typical RSU grant generally isn’t taxed simply because the employer awarded it.
The relevant taxable event generally occurs later when the shares are transferred or the arrangement otherwise becomes taxable.
Mistake 2: Assuming withholding equals final tax
Payroll withholding is not necessarily the same as your final tax liability.
Mistake 3: Using the grant price as your tax basis
For typical RSUs, the amount included in income when shares are transferred is generally relevant to your basis.
Mistake 4: Forgetting state taxes
Federal taxation is only one part of the calculation.
Mistake 5: Using the wrong holding period
The holding period for the shares generally starts after you acquire the shares—not when the original RSU award was granted.
Mistake 6: Selling without considering concentration risk
Holding a large amount of employer stock exposes you to the financial performance of the same company that provides your employment income.
Mistake 7: Ignoring your 1099-B
Brokerage reporting should be reviewed carefully, particularly the reported cost basis.
How to Reduce RSU Tax Legally
There is no universal strategy that eliminates RSU tax.
However, employees can make informed decisions that may improve their overall tax and financial position.
Potential considerations include:
Understand the vesting schedule
Knowing when large amounts of RSUs will become taxable can help you plan for potential tax liability.
Review withholding
Compare withholding with your expected overall tax liability.
Understand your tax basis
Keep documentation from the vesting and settlement transaction.
Consider the holding period
If you retain shares after settlement, understand the difference between short-term and long-term capital gains.
Diversify when appropriate
Holding too much employer stock can create concentration risk.
Consider state tax consequences
State residency and work location can materially affect equity compensation taxation.
Work with a tax professional
This can be especially important for executives, high-income employees, multi-state workers, people who move internationally, or employees with substantial private-company equity.
RSU Tax and International Employees
RSU taxation can become substantially more complicated when an employee works across countries.
The IRS has specific guidance explaining that stock-based compensation for nonresident aliens can involve sourcing rules based on where services were performed during the relevant vesting period.
For example, an employee might:
- Receive an RSU grant while working in the U.S.
- Move overseas before vesting
- Return to the U.S. later
- Become a tax resident of another country
The resulting tax analysis can involve U.S. federal tax, state tax, foreign tax, tax treaties, and income sourcing.
Employees with international mobility should obtain specialized tax advice rather than relying on the basic domestic RSU rules.
Do RSUs Qualify for an 83(b) Election?
Generally, a typical RSU grant does not qualify for a Section 83(b) election.
This is an important distinction between RSUs and restricted stock.
An 83(b) election generally relates to property transferred in connection with services that is subject to substantial vesting restrictions.
A typical RSU is a contractual promise to provide stock or cash in the future. The IRS explains that an RSU generally is not treated as property for Section 83 purposes at grant because actual property has not yet been transferred.
Therefore, employees should not assume they can file an 83(b) election simply because they received RSUs.
If your employer grants restricted stock rather than RSUs, the analysis can be different.
RSUs vs. Restricted Stock
These two terms are sometimes confused.
RSUs
An RSU is generally a promise to deliver stock or cash in the future after specified conditions are satisfied.
Restricted Stock
Restricted stock involves an actual transfer of stock that is subject to restrictions.
The tax rules can therefore differ significantly.
For certain restricted stock arrangements, a taxpayer may be able to make an 83(b) election, subject to strict requirements and deadlines.
That does not generally apply to a standard RSU grant.
RSU Tax Checklist
If you receive RSUs from a U.S. employer, keep track of the following:
Before vesting
- Grant date
- Number of RSUs
- Vesting schedule
- Performance conditions
- Employer’s plan document
- Award agreement
At vesting and settlement
- Vesting date
- Settlement/transfer date
- Number of shares
- Stock price
- Fair market value
- Shares withheld
- Federal withholding
- State withholding
- Social Security and Medicare withholding
After receiving shares
- Number of shares owned
- Tax basis
- Acquisition/transfer date
- Brokerage account records
- Company trading restrictions
When selling
- Sale date
- Sale price
- Number of shares sold
- Gross proceeds
- Transaction costs
- Form 1099-B or applicable brokerage statement
- Short-term vs. long-term holding period
Keeping these records can make tax reporting much easier.
Frequently Asked Questions About RSU Tax
Are RSUs taxed when granted?
Generally, a typical RSU grant is not immediately taxable simply because the employer granted the RSUs. The IRS explains that an RSU generally represents a promise to provide stock or cash in the future.
Are RSUs taxed when they vest?
For a typical stock-settled RSU, taxation generally occurs when the shares are transferred following vesting, although the exact timing depends on the arrangement.
Are RSUs taxed as income or capital gains?
The value recognized when typical RSUs become taxable is generally compensation income. A later increase or decrease in the stock’s value after acquisition generally creates a capital gain or loss when the shares are sold.
What is the RSU tax rate?
There is no single RSU tax rate. RSU compensation is generally subject to applicable federal income tax rates and employment taxes. The actual federal income tax depends on your overall taxable income and filing status. IRS
Are RSUs taxed twice?
Generally, you are not supposed to pay income tax twice on the same amount. The initial taxable RSU compensation generally becomes part of your tax basis, so a later sale generally taxes only the subsequent gain or loss.
Do I pay tax when I sell RSUs?
You may owe capital gains tax or recognize a capital loss when you sell shares received from RSUs. The amount generally depends on the sale price compared with your adjusted tax basis.
How long should I hold RSU shares?
There is no universal answer. Holding shares for more than one year can potentially result in long-term rather than short-term capital-gain treatment, but holding employer stock longer also exposes you to additional investment risk. The IRS generally treats property held for more than one year as long-term.
Do RSUs appear on a W-2?
Can RSUs be taxed by a state?
Yes. State and local tax treatment can apply depending on where you live, where you worked, and the applicable state rules.
Can RSUs be worth nothing?
Yes. If the underlying company stock falls substantially, the market value of your shares can decline. Private-company RSUs can also present liquidity risk because there may be no public market for the shares.
Final Thoughts on RSU Tax
Understanding RSU tax becomes much easier once you separate the process into two stages.
First, the RSUs generally become taxable as compensation when the applicable conditions are satisfied and the shares are transferred or otherwise become taxable under the arrangement. The fair market value at that point generally determines the amount of compensation income for a typical stock-settled RSU.
Second, after you receive the shares, their value can change.
If you later sell the stock for more than your adjusted tax basis, you generally have a capital gain. If you sell for less, you generally have a capital loss. The IRS generally distinguishes short-term gains for assets held one year or less from long-term gains for assets held more than one year.
The most important numbers to track are therefore:
RSU settlement value → compensation income → tax basis → eventual sale price → capital gain or loss
Employees should also remember that employer withholding is not necessarily the same as their final tax liability. State taxes, Social Security and Medicare taxes, additional Medicare tax, and potentially the Net Investment Income Tax can further affect the overall picture.
For 2026, the IRS continues to use a progressive federal income tax system, while the standard federal supplemental-wage withholding rate is generally 22% for separately identified supplemental wages under $1 million, subject to the applicable payroll rules.
If your RSU compensation is substantial, you work in multiple states, move internationally, receive private-company equity, or have complicated tax circumstances, professional advice can be worthwhile.
The key takeaway is simple:
RSUs are generally taxed as compensation when they become taxable, and later changes in the stock’s value are generally taxed separately as capital gains or losses when you sell the shares.
Understanding this distinction can help you plan for taxes, maintain accurate records, and avoid common RSU reporting mistakes.
Authoritative U.S. Resources
For readers who want to verify the rules directly with U.S. government sources, these are useful references:
- IRS Publication 525 — Taxable and Nontaxable Income — General IRS guidance covering employee compensation and stock-related compensation.
- IRS: U.S. Taxation of Stock-Based Compensation — IRS discussion specifically covering RSUs, including vesting, transfer, income inclusion, and W-2 reporting.
- IRS Topic No. 427 — Stock Options — Useful for comparing RSUs with statutory and nonstatutory stock options.
- IRS Publication 550 — Investment Income and Expenses — Covers capital gains, losses, holding periods, and the Net Investment Income Tax.
- IRS Form 8949 Instructions — Guidance for reporting sales and exchanges of capital assets.
- IRS 2026 Federal Income Tax Rates and Adjustments — Current 2026 federal tax-rate and inflation-adjustment information.
- IRS Topic No. 559 — Net Investment Income Tax — Official IRS guidance on the 3.8% NIIT.
- IRS Publication 15 — Employer’s Tax Guide — Current employer guidance covering supplemental wage withholding.