Equity Compensation

RSU Tax Calculator: How Restricted Stock Units Are Taxed in 2026

Q: How are RSUs taxed when they vest?

RSUs are taxed as ordinary income in the year they vest. The taxable amount equals the fair market value of the shares on the vest date multiplied by the number of shares vesting. Your employer withholds taxes — typically at the IRS supplemental rate of 22% federal (37% above $1 million) — plus Social Security and Medicare. The income appears on your W-2, not a 1099.

Q: Why do I owe extra taxes on my RSUs at tax time?

Most RSU recipients owe additional taxes because their employer withholds at the flat 22% supplemental rate, but their actual marginal rate is higher. A software engineer earning $160,000 in salary with $80,000 in RSUs has $240,000 in total income, placing them in the 32% federal bracket. The 10-percentage-point gap on $80,000 in RSU income creates an $8,000 underpayment at the federal level alone.

Q: Do I pay Social Security tax on RSU income?

Yes, RSU vest income is subject to Social Security tax (6.2%) up to the 2026 wage base of $184,500. If your W-2 salary has already exceeded $184,500 before your vest date, you owe no additional Social Security on the RSU. Medicare (1.45%) applies to all RSU income with no cap, plus an additional 0.9% Medicare surtax on income above $200,000 for single filers.

Q: What happens when I sell RSU shares after they vest?

When you sell vested RSU shares, you owe capital gains tax on any appreciation since the vest date. If you sell within one year of vesting, gains are taxed as short-term capital gains (your ordinary income rate). If you hold for more than one year, long-term capital gains rates apply: 0%, 15%, or 20% depending on your income. The vest date — not the grant date — is the holding period start.

Q: What is a same-day RSU sale and does it reduce my taxes?

A same-day sale means selling all vested RSU shares immediately on vest date. It does not reduce the income tax owed — you still owe ordinary income tax on the full vest-date value. However, it eliminates stock concentration risk and simplifies tax reporting because there is no capital gain or loss: the sale price equals your cost basis. Many financial advisors recommend it for single-company risk management.

Q: Can I avoid RSU withholding by adjusting my W-4?

You cannot change how your employer withholds on the RSU income itself — the 22% supplemental rate is standard. However, you can adjust your W-4 to withhold extra from your regular paychecks to cover the anticipated shortfall. Alternatively, you can make quarterly estimated tax payments using Form 1040-ES. Failure to cover the gap results in an underpayment penalty equal to the short-term federal rate plus 3 percentage points.

Q: How do California taxes affect RSU income?

California taxes RSU income at ordinary income rates — up to 13.3% for income above $1 million, with a 9.3% rate starting at roughly $68,000 for single filers. California also has a unique rule: if you earned RSUs while working in California but have since moved to another state, California may still tax a prorated portion based on the time worked in-state during the vesting period.

Q: What is the difference between RSUs and stock options for taxes?

RSUs are taxed automatically at vesting as ordinary income — you owe tax whether or not you sell shares. Stock options (NSOs) are taxed when you exercise them, giving you more control over timing. Incentive Stock Options (ISOs) may qualify for favorable long-term capital gains treatment if you meet holding requirements, but can trigger Alternative Minimum Tax. RSUs are simpler: no exercise required, no AMT, and no risk of underwater options.

Your employer withholds 22% on RSU income. If your marginal rate is 32% or 37%, you are already behind. Here is the full 2026 breakdown — and how to calculate exactly what you owe.

May 12, 202615 min read

Key Takeaways

RSUs are taxed as ordinary income at vesting — the IRS calls this supplemental wages, withheld at a flat 22% federal rate (37% above $1 million)
The withholding gap is real: a software engineer in the 32% bracket with $80,000 in RSUs can face an $8,000+ federal tax shortfall at filing
FICA (Social Security + Medicare) applies to RSU income — but SS caps at the $184,500 wage base in 2026
State tax adds 0–13.3% depending on location; California can claim RSU income even after you move
When you later sell vested shares, capital gains tax applies — long-term rates (0–20%) if held 12+ months from vest date

The $11,000 Surprise: A Real RSU Tax Scenario

Consider a senior software engineer earning a $175,000 base salary in Seattle. In March 2025, a tranche of 400 RSUs vests at a stock price of $275 per share — a vest value of $110,000. Her payroll system automatically withholds 22% federal ($24,200) plus Washington has no state income tax, so she figures she is covered.

She is not. Her combined income — $175,000 salary plus $110,000 in RSU income — is $285,000. That puts her in the 35% federal bracket for every dollar above $243,725. The 22% withholding on her RSU income creates a 13-percentage-point gap. The federal shortfall alone is roughly $14,300. Add the 0.9% Additional Medicare Tax on income over $200,000, and she owes approximately $15,500 at filing.

This is not a rare edge case. According to data compiled by CountryTaxCalc's 2026 RSU tax analysis, this withholding gap problem affects the majority of RSU recipients in the 32–37% brackets — which includes most employees at major technology firms. The fix requires understanding how RSUs are taxed at every level.

How RSU Taxation Works: The Three Events

RSU tax follows a straightforward sequence tied to three distinct events. Confusing them is the most common source of errors.

Event 1: Grant Date — No Tax

When your employer grants RSUs, you receive a promise of future shares. There is no taxable income at grant. The grant price has no relevance to your tax calculation. You cannot elect Section 83(b) on RSUs (that election applies only to restricted stock).

Event 2: Vest Date — Ordinary Income Tax

This is when you owe tax. The number of shares vesting multiplied by the fair market value on the vest date equals your taxable income. Your employer adds this amount to your W-2 wages and withholds taxes. Regardless of whether you sell the shares that day, you owe income tax on the full vest-date value.

Event 3: Sale Date — Capital Gains Tax

When you sell vested shares, you owe capital gains tax only on appreciation above the vest-date price (your cost basis). If you hold shares for more than 12 months after vesting, long-term capital gains rates apply. If you sell immediately on vest day, there is typically no capital gain or loss — the sale price equals your basis.

Use our Net Pay Calculator to model how RSU income changes your total take-home for the year when combined with your regular salary.

2026 Federal Withholding Rates on RSU Income

The IRS classifies RSU vest income as supplemental wages, which triggers specific withholding rules. For 2026, these are the federal rates that apply:

Tax Type	Rate	Cap / Threshold	Notes
Federal Income Tax (Withholding)	22%	Up to $1,000,000 in supplemental wages	Withholding only — actual tax depends on bracket
Federal Income Tax (Withholding)	37%	Supplemental wages above $1,000,000	Rare — applies to very high-value vests
Social Security	6.2%	Up to $184,500 combined wages (2026)	0% if salary already exceeds wage base
Medicare	1.45%	No cap — all wages	Always applies to RSU income
Additional Medicare Surtax	0.9%	On wages above $200K (single) / $250K (MFJ)	Not withheld automatically by all employers

A critical nuance on Social Security: your employer tracks cumulative W-2 wages. If your base salary has already pushed you past the $184,500 SS wage base before your RSU vest date, you will not owe Social Security on the RSU income. This is why RSU tax varies significantly depending on when in the calendar year shares vest.

The Additional Medicare Tax (0.9%) is often under-withheld. The IRS requires employers to withhold it only once an employee's W-2 wages exceed $200,000 in a single year — so some employers do not withhold it on RSU income even when the combined total will exceed the threshold at filing. Verify with your payroll department whether they are withholding the surtax on your RSU income.

The Withholding Gap: How Big Is Your Shortfall?

This table shows the estimated federal tax gap created by the 22% flat withholding rate versus your actual marginal bracket. State taxes are additional.

Total Income (Salary + RSUs)	Marginal Bracket	Gap Per $10K RSU	Gap on $80K RSU Vest	Gap on $200K RSU Vest
$47,151 – $100,525	22%	$0	$0	$0
$100,526 – $191,950	24%	$200	$1,600	$4,000
$191,951 – $243,725	32%	$1,000	$8,000	$20,000
$243,726 – $609,350	35%	$1,300	$10,400	$26,000
$609,351+	37%	$1,500	$12,000	$30,000

Note: These figures represent the federal income tax gap only. State taxes add additional shortfall in high-tax states. The gap amounts assume RSU income falls entirely within the stated bracket — in practice, the bracket exposure depends on where the RSU income falls in the progressive rate structure.

RSU Tax by State: High-Tax vs. No-Tax Comparison

State income tax on RSU income ranges from zero (Texas, Florida, Nevada, Washington) to 13.3% in California for top earners. This creates meaningful differences in effective RSU take-home across geographies — a significant factor in remote work location decisions.

State	State Rate on RSU	Take-Home on $50K Vest (32% Fed)	Take-Home on $150K Vest (35% Fed)
Texas / Florida / WA / NV	0%	~$32,600	~$95,100
Colorado / Arizona	4.4–4.5%	~$30,400	~$88,500
Illinois / Michigan	4.95–4.25%	~$30,200	~$87,800
Massachusetts	5.0%	~$30,100	~$87,600
New York (state only)	up to 10.9%	~$27,200	~$79,100
California	up to 13.3%	~$26,100	~$76,000

Take-home estimates above assume the 35% or 32% federal bracket as noted, plus Medicare 1.45%, and no Social Security (assuming salary already exceeds the wage base). Actual results vary based on deductions, additional local taxes (NYC adds up to 3.876%), and other income sources.

California's sourcing rules create a unique trap: if you vested RSUs while employed in California and subsequently moved to another state, California may claim a portion of your RSU income based on the fraction of the vesting period you worked in-state. This applies even if you have since established domicile elsewhere and sold the shares after leaving. According to CountryTaxCalc's 2026 California RSU Tax Guide, many employees who relocate from California still receive surprise tax bills from the Franchise Tax Board.

RSU Tax Formula: How to Calculate Your Liability

Use this step-by-step formula to estimate your RSU tax obligation for a given vesting event:

Calculate RSU Income: Shares vesting × Fair Market Value on vest date = RSU ordinary income
Example: 300 shares × $280/share = $84,000
Add to Projected Annual Income: Estimated W-2 salary + RSU income = Total income
Example: $180,000 + $84,000 = $264,000
Determine Marginal Bracket: Use 2026 federal brackets to find where $264,000 falls (35% bracket for single filers above $243,725)
Calculate Federal Tax on RSU: RSU income × marginal rate = federal tax owed
Example: $84,000 × 35% = $29,400 federal tax owed
Subtract Withheld Amount: Federal tax owed − (RSU income × 22%) = Shortfall
Example: $29,400 − $18,480 = $10,920 underpayment
Add FICA: If total wages are below $184,500, add 6.2% SS + 1.45% Medicare. If above, add only 1.45% Medicare + 0.9% surtax if above $200K single.
Add State Tax: RSU income × state marginal rate = additional state liability

Use our Federal Income Tax Calculator to model different total income scenarios including RSU vests to see your effective rate and projected liability.

Capital Gains on RSU Shares You Hold After Vesting

Once RSUs vest, you own shares with a cost basis equal to the vest-date FMV. If the stock subsequently rises and you sell, the gain is taxed as capital gains — not as income. The rate depends on your holding period measured from the vest date.

Holding Period After Vest	Capital Gain Type	2026 Federal Rate	Example: $10 gain per share, 200 shares
12 months or less	Short-term	Ordinary income rate (up to 37%)	$2,000 gain × 35% = $700 tax
More than 12 months	Long-term	0%, 15%, or 20% based on income	$2,000 gain × 15% = $300 tax
Immediate sale on vest date	None (same-day)	$0 capital gain/loss	No additional tax beyond income tax at vest

For high earners with significant long-term gains, the 3.8% Net Investment Income Tax (NIIT) may also apply on top of capital gains rates. The NIIT triggers on net investment income when modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly).

The Same-Day Sale vs. Hold Debate

Two schools of thought dominate RSU strategy among tech employees:

Same-Day Sale: The Conservative Approach

Sell all shares immediately on vest date. Benefits: eliminates stock concentration risk, simplifies taxes (no capital gains tracking), and provides immediate cash to cover the withholding gap. Many financial advisors recommend this by default because holding a single employer's stock ties both your income and investments to the same entity.

This approach makes the most sense if: your employer stock is already a significant part of your net worth, you are in a high-volatility sector, or you are within 12 months of a major liquidity event (home purchase, retirement).

Hold for Long-Term Capital Gains: The Aggressive Approach

Hold vested shares for 12+ months to convert future gains from ordinary income (up to 37%) to long-term capital gains (0–20%). This creates a potential 17–37 percentage point tax rate difference on gains. However, it requires confidence in the stock, tolerance for concentration risk, and sufficient cash to pay the income tax at vesting without selling shares.

This makes sense if: the stock has strong appreciation potential, your portfolio is otherwise diversified, and you have liquidity to fund the tax obligation from other sources.

Five Strategies to Close the Withholding Gap

The withholding gap is not avoidable, but its consequences are. These strategies prevent an IRS underpayment penalty (currently the federal short-term rate plus 3 percentage points):

Adjust your W-4 withholding: Add a specific extra dollar amount to withhold on each paycheck. Calculate the annual shortfall, divide by your remaining pay periods for the year, and enter that amount in Step 4(c) of your W-4. This requires updating after each major vesting event.
Make quarterly estimated tax payments (Form 1040-ES):If you prefer not to change your W-4, make estimated payments by April 15, June 15, September 15, and January 15. The safe harbor rule says you avoid penalties if you pay either 100% of last year's tax liability (110% if AGI was above $150,000) or 90% of this year's actual liability.
Request additional withholding through HR: Some companies allow employees to request a higher withholding rate on supplemental wages — ask your payroll or equity team whether this is possible at your company.
Maximize pre-tax deductions in RSU vesting quarters: If your RSU vest falls in Q2, maximize 401(k) and HSA contributions in Q1–Q2 to reduce taxable income. In 2026, the 401(k) limit is $24,500 ($31,000 if age 50+) and the HSA limit is $4,400 individual / $8,750 family.
Sell shares to cover the shortfall:If your employer offers a "sell to cover" program for taxes at vesting, consider whether to expand this to cover the federal gap — not just the base withholding. Ask whether your employer calculates withholding at 22% or at your actual effective rate.

Use our Net Pay Calculator to model how additional 401(k) contributions reduce your taxable income and partially offset RSU income in the year of vesting.

RSU vs. Stock Options: Tax Treatment Compared

The choice between RSUs and stock options is increasingly decided by the company, not the employee — but understanding the tax difference matters for planning.

Feature	RSUs	NSOs (Non-Qualified Options)	ISOs (Incentive Options)
Tax trigger	Vest date	Exercise date	Sale date (if held)
Income type at trigger	Ordinary income	Ordinary income (spread)	LTCG if held 12+ months
FICA applies at trigger?	Yes (at vest)	Yes (at exercise)	No (capital gain)
AMT risk?	No	No	Yes (spread at exercise)
Tax timing control	Limited (tied to vest schedule)	Moderate (choose exercise year)	High (choose exercise and sale year)

For a deeper comparison including Black-Scholes valuation of stock options, see our Stock Options vs. RSUs guide.

Frequently Asked Questions

How are RSUs taxed when they vest?

RSUs are taxed as ordinary income at vest. The taxable amount is the FMV on vest date multiplied by shares vesting. Your employer withholds at 22% federal (supplemental rate) plus FICA. The income appears on your W-2. Whether or not you sell the shares does not change the income tax owed.

Why do I owe extra taxes on my RSUs at tax time?

Your employer withholds at 22% flat, but if your combined salary plus RSU income puts you in the 24%, 32%, 35%, or 37% bracket, you owe the difference at filing. A software engineer with $160K salary and $80K in RSUs faces a $240K combined income — squarely in the 32% bracket — creating an ~$8,000 federal gap at filing.

Do I pay Social Security tax on RSU income?

Yes, RSU income is subject to Social Security (6.2%) up to the 2026 wage base of $184,500. If your salary already exceeds the cap before your vest date, you owe no Social Security on RSU income. Medicare (1.45%) always applies, plus 0.9% additional surtax if total wages exceed $200,000.

What happens when I sell RSU shares after they vest?

Selling vested shares triggers capital gains tax on any appreciation above the vest-date price. Hold 12+ months for long-term rates (0–20%). Sell within 12 months and gains are taxed at ordinary income rates. Selling on the vest date itself typically generates no additional capital gain or loss.

What is a same-day RSU sale and does it reduce my taxes?

Selling RSU shares immediately on vest day does not reduce income taxes — you still owe ordinary income tax on the full vest-date value. However, it eliminates future stock concentration risk and creates no capital gain tracking complexity since cost basis equals sale price. Financial advisors commonly recommend it as the default for diversification.

Can I avoid RSU withholding by adjusting my W-4?

You cannot change the 22% supplemental rate on the RSU itself. However, you can add extra dollar withholding to your regular paychecks via W-4 Step 4(c), or make quarterly estimated payments (Form 1040-ES). Either approach prevents the underpayment penalty.

How do California taxes affect RSU income after I move out of state?

California uses a source-income rule: if you earned RSUs while working in California, the FTB may tax a prorated share even after you relocate. The taxable portion is based on days worked in California during the vesting period divided by total vesting period days. This applies regardless of where you live when the RSUs vest.

What is the difference between RSUs and stock options for taxes?

RSUs are taxed as ordinary income automatically at vest — no choices required. Stock options let you choose when to exercise, giving timing control over your tax year. ISOs can qualify for long-term capital gains treatment if holding requirements are met but risk triggering AMT. RSUs are simpler; options offer more tax planning flexibility for the disciplined.

Calculate Your Total Compensation Including RSUs

See how your base salary, RSU income, and other benefits combine into a true total compensation number — and what you actually take home after all taxes.

Net Pay Calculator Federal Income Tax Calculator

Explore More Tools