Quick Answer
RSUs are taxed as ordinary income at their full market value when they vest. If 100 RSUs vest at $50/share, you owe income tax on $5,000 as if it were salary. Most companies withhold 22% federal tax automatically, but you may owe more at year-end if you're in a higher tax bracket.
Best Answer
Sarah Chen, Payroll Tax Analyst
Best for employees receiving RSUs who want to understand the tax basics and avoid year-end surprises
RSU taxation basics: It's treated like salary
When RSUs vest, the IRS treats the full market value as ordinary income, exactly like receiving a cash bonus. This income appears on your W-2 and is subject to federal income tax, state tax, Social Security, and Medicare taxes.
Example calculation for 200 RSUs vesting at $75/share:
How RSU withholding works
Most companies use supplemental wage withholding for RSUs, which defaults to 22% federal tax regardless of your actual tax bracket.
Withholding vs. actual tax owed:
The "gross-up" problem
Many employees are shocked when they receive fewer shares than expected. This happens because companies typically withhold taxes by selling some of your shares.
Example with 100 RSUs vesting at $100/share:
State tax complications
State taxes add another layer of complexity:
What happens after vesting
Once RSUs vest and you own the shares:
1. Your basis is the fair market value on vest date
2. Future gains/losses are capital gains when you sell
3. Holding period starts on vest date (not grant date)
Tax example for future sale:
Planning strategies
For large vesting events:
What you should do
1. Calculate your expected tax bill using our paycheck calculator before vesting
2. Review your W-4 withholding to ensure adequate tax payments
3. Set aside cash for additional taxes if you're in a high bracket
4. Plan your selling strategy — immediate vs. long-term holding
5. Track your cost basis for accurate capital gains calculations
Use our [job offer comparison tool](/tools/job-offer-compare) to properly value RSU grants when evaluating job opportunities.
Key takeaway: RSUs create a tax liability equal to 30-40% of their value at vesting (depending on your bracket), with most companies withholding only 22% federal tax automatically.
*Sources: IRS Publication 525 (Taxable and Nontaxable Income), IRS Publication 15 (Employer's Tax Guide)*
Key Takeaway: RSUs are taxed as ordinary income at full market value when they vest, typically creating a 30-40% tax liability with only 22% automatically withheld.
RSU tax rates by income level showing federal, state, and additional taxes
| Income Level | Federal Rate | CA State | Payroll Tax | Total Rate | Tax on $10K RSUs |
|---|---|---|---|---|---|
| $50,000 | 12% | 6% | 7.65% | 25.65% | $2,565 |
| $100,000 | 24% | 8% | 7.65% | 39.65% | $3,965 |
| $200,000 | 32% | 9.3% | 8.55%* | 49.85% | $4,985 |
| $400,000 | 37% | 13.3% | 8.55%* | 58.85% | $5,885 |
More Perspectives
Marcus Rivera, Compensation & Benefits Analyst
Best for high-income employees who face complex tax situations with large RSU grants and need advanced planning strategies
Advanced RSU tax planning for high earners
High earners face unique RSU challenges due to higher tax brackets, AMT considerations, and the 3.8% Net Investment Income Tax (NIIT).
Tax rates for high earners on RSU vesting:
The underpayment penalty trap
Large RSU vesting events can trigger underpayment penalties if quarterly estimated taxes aren't made:
Example: $500,000 RSU vesting in Q1
Alternative Minimum Tax (AMT) impact
RSUs can push high earners into AMT territory:
AMT planning requires projecting total income including RSU vesting to optimize timing.
Strategic considerations
Timing strategies:
Concentration risk management:
For executives with large grants, RSUs can create dangerous concentration:
Key takeaway: High earners can face 45-55% total tax rates on RSU vesting and must actively manage quarterly payments to avoid substantial underpayment penalties.
Key Takeaway: High earners face 45-55% total tax rates on RSU vesting and must make quarterly estimated payments to avoid underpayment penalties of 8% annually.
Marcus Rivera, Compensation & Benefits Analyst
Best for employees nearing retirement who need to coordinate RSU vesting with retirement planning and Medicare considerations
RSU considerations for pre-retirees
Pre-retirees face unique RSU challenges related to Medicare premiums, Social Security taxation, and retirement account access.
Medicare premium impact (IRMAA)
RSU vesting can trigger Income-Related Monthly Adjustment Amounts (IRMAA), significantly increasing Medicare Part B and Part D premiums:
2026 Medicare Part B IRMAA thresholds:
Example: Retiree with $95,000 normal income
Social Security taxation
RSU income can push Social Security benefits into higher taxation brackets:
Strategic retirement timing
Consider vesting schedules when planning retirement:
401(k) coordination:
Large RSU vesting events may limit 401(k) contributions due to payroll timing:
Pre-retirees should model the multi-year impact of RSU vesting on Medicare premiums and Social Security taxation, as the effects can persist for several years due to lookback periods.
Key takeaway: RSU vesting can increase Medicare premiums by $2,500+ annually for two years and trigger higher Social Security taxation, making timing crucial for pre-retirees.
Key Takeaway: Pre-retirees must consider that RSU vesting can increase Medicare premiums by $2,500+ annually and trigger higher Social Security taxation due to income lookback periods.
Sources
- IRS Publication 525 — Taxable and Nontaxable Income
- IRS Publication 15 — Employer's Tax Guide
Related Questions
Reviewed by Sarah Chen, Payroll Tax Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.