Restricted Stock Units (RSUs) are the most common form of equity compensation at large public companies — and the most commonly misunderstood from a tax perspective. They're conceptually simple: you receive shares, but only once you've satisfied a vesting schedule (typically 4 years with a 1-year cliff). The tax treatment is also straightforward on paper. But the gap between what's withheld and what you actually owe can be thousands of dollars.
When RSUs are taxed
Unlike stock options, RSUs have no exercise event. The taxable event is vesting: when shares become unrestricted, you've received compensation equal to the number of shares times the fair market value on that date. That amount is added to your W-2 income and taxed at ordinary income rates.
If you sell the shares immediately (a same-day sell), there's no additional tax — you've already paid on the full value. If you hold them and they appreciate, the additional gain is a capital gain (short-term if held less than a year, long-term if held longer). If they decline below your vesting price, you have a capital loss.
Your cost basis in RSU shares is always the FMV on the vesting date — the same number that appeared in your W-2. This matters a lot when you eventually sell, especially if you hold shares across multiple vesting events at different prices.
The withholding gap
Here's where most people get surprised. The IRS treats RSU income as "supplemental wages," and the mandatory federal withholding rate is 22% — or 37% for amounts above $1 million in a year. For many tech employees, especially in California, 22% is nowhere near their actual marginal tax rate.
Consider: a single filer earning $180,000 in salary is in the 32% federal bracket. If $80,000 in RSUs vest on top of that, the RSU income will be withheld at only 22%. The actual marginal rate on that income is 32%. The gap — 10 points on $80,000 — is $8,000 owed at filing.
In California, add the state withholding gap on top. The supplemental withholding rate is 10.23%, but the top marginal rate is 13.3%. Another $2,456 gap on $80,000.
Total potential underpayment on this one vesting event: $10,456.
What to actually set aside
The safest approach: calculate your marginal effective rate on the RSU income and set aside the difference from what was withheld.
Our RSU Calculator does this for you — it computes your total federal liability, state liability (30 states supported), Social Security, Medicare, and NIIT, then compares it to the standard withholding rates to show exactly how much additional you'll owe at filing.
A rough manual calculation:
- Estimate your total income including RSUs
- Find your federal marginal bracket (32%, 35%, or 37% for most tech employees)
- Subtract 22% (the withholding rate)
- Apply that difference percentage to your gross RSU income
- Repeat for state taxes
Set the result aside in a savings account. Don't invest it — you'll need it in April.
Social Security and Medicare
RSU income is also subject to FICA taxes:
- Social Security: 6.2% on the first $176,100 of wages (2025) / ~$180,000 (2026 estimate). If your salary already exceeds this cap, RSU income is exempt from SSI — but the cap applies to total wages, so if RSUs vest early in the year before you hit the cap, you'll owe SSI on them.
- Medicare: 1.45% with no cap. Always applies.
- Additional Medicare surtax: 0.9% on wages above $200,000 (single) or $250,000 (MFJ). If RSUs push you above this threshold, the surtax applies to the amount over the line.
These are typically withheld by your employer at vesting, but worth tracking if you have multiple income sources.
Net Investment Income Tax (NIIT)
This is the one that often catches people off guard. The NIIT is a 3.8% surtax that applies to investment income — including capital gains — for high earners. It kicks in when your Modified AGI exceeds $200,000 (single) or $250,000 (MFJ).
RSU income itself is not investment income — it's ordinary income. But if you hold vested RSU shares and they appreciate, the eventual sale gain is investment income subject to NIIT. At the 20% LTCG rate plus 3.8% NIIT, you're looking at an effective 23.8% federal rate on long-term gains.
Multiple vesting events: tracking cost basis
Most RSU grants vest quarterly or annually, which means you accumulate shares with different cost bases over time. This matters when you sell:
- FIFO (first in, first out): the default in most brokerages. Oldest shares sold first — often the lowest basis, meaning the highest gain.
- Specific identification: you choose which shares to sell, potentially minimizing gains or harvesting losses.
- LIFO (last in, first out): sell most recent shares first — often highest basis.
If you have significant unrealized losses on older tranches and gains on newer ones (or vice versa), specific identification can make a meaningful difference. Our RSU Calculator tracks up to 12 separate vesting events so you can model the full picture before selling.
The same-day sell question
Many people default to same-day sells to avoid market risk — sell shares immediately at vesting, pay tax on the income, done. This is a perfectly reasonable strategy, especially if:
- You're already heavily concentrated in company stock through your salary dependence
- The stock is volatile and you can't afford the downside
- You don't want to manage tax lots and basis tracking
The downside is that you pay ordinary income rates on the full value and miss any LTCG treatment. Whether holding is worth it depends on your view of the stock, your risk tolerance, and your total tax picture — all of which the calculator can help you model.