RSUs are taxed like salary, with no special rate. When shares vest, their market value is wage income on your W-2, and your employer withholds tax on it, usually by selling or keeping some of the shares.
- The cut looks large because federal income tax, state tax, Social Security, and Medicare all come out at once.
- It can still fall short, because federal withholding is usually a flat 22% and many RSU holders are in a higher bracket.
- Sell-to-cover is the most common way the tax gets paid: a broker sells enough shares to cover the withholding, and you keep the rest.
Why are RSUs taxed so high?
A vest pays several taxes in one transaction, so the share count drops more than people expect. Here is an illustrative $10,000 vest with 22% federal withholding, an assumed 5% state rate, and employee payroll taxes:
| Withholding | Rate | Amount |
|---|---|---|
| Federal income tax | 22% | $2,200 |
| State income tax | 5% | $500 |
| Social Security | 6.2% | $620 |
| Medicare | 1.45% | $145 |
| Total | 34.65% | $3,465 |
You keep $6,535 of the $10,000. The 34.65% is four separate taxes added together, and only 22% of it is federal income tax.
Are RSUs taxed more than salary?
No. The vest is ordinary income, like salary. A large vest can push part of your income into a higher bracket, but the higher rate applies only to the dollars in that bracket, not to everything you earned.
When does RSU income become taxable?
For a typical public-company grant, shares are delivered when they vest. Their market value is then ordinary compensation income reported on your W-2. Granting the units usually creates no income tax.
Suppose 1,000 shares are delivered at $100 each:
- You recognize $100,000 of compensation even if some shares immediately go toward withholding.
- The shares generally have a $100-per-share tax basis: the amount already taxed as wages.
- A later sale creates a separate capital gain or loss based on the change from that value.
The IRS equity-compensation guide explains the income and basis rules.
Which federal withholding rate applies?
Under the IRS supplemental-wage rules:
- Standard supplemental wages: eligible employers can use a flat 22% rate or an aggregate method that combines supplemental and regular wages.
- Over $1 million: the 37% rate is mandatory on the portion of an employee’s annual supplemental wages exceeding $1 million, subject to the employer-aggregation rules. This is not a household-income threshold.
State and local income tax, Social Security, and Medicare can add to the amount withheld. The Social Security wage limit and Medicare rules apply separately.
Example: a federal withholding shortfall
Assume an $80,000 award is taxed entirely in the 35% federal bracket, and payroll uses 22% withholding:
| Item | Amount |
|---|---|
| Federal tax on award | $28,000 |
| Federal tax withheld | $17,600 |
| Gap to fund | $10,400 |
Use the RSU withholding calculator to compare a stated federal rate with the withholding on a specific award.
How do companies collect the withholding?
| Method | What happens | You keep |
|---|---|---|
| Sell-to-cover | Broker sells enough to cover tax | Remaining shares |
| Net share withholding | Employer keeps shares, pays tax | Remaining shares |
| Sell all | Broker sells full award | Cash after tax and fees |
| Cash payment | You pay in cash, if allowed | All shares |
Your plan determines which methods are available.
- A market sale can create a small gain or loss if its price differs from the compensation value.
- Net share withholding does not necessarily involve a brokerage sale.
That distinction explains why two coworkers can receive similar net awards but different brokerage tax forms.
Will selling the shares tax the same income twice?
It shouldn’t. The value taxed as wages at vest becomes your basis in the shares, so a sale is taxed only on the change after vest.
- If shares worth $100 at vest sell for $110, the gain is $10 per share.
- If they sell for $70, the $30 is a capital loss. It doesn’t reverse $30 of wage income.
What should you check before the next award?
- Project the household’s full year. Include salary, bonuses, remaining awards, investment income, deductions, and a spouse’s income.
- Compare projected tax with payments. Count salary withholding and estimated payments, not only the award’s withholding.
- Fund a shortfall on time. Extra W-4 withholding counts as paid evenly through the year, so it can cover earlier quarters. Estimated payments count from the date you send them. Underpayment penalties follow the IRS payment rules and exceptions, not the size of your April balance.
- Choose what to hold. Holding shares after vest is an investment decision, and it doesn’t turn the wage income into capital gain. See how much employer stock to keep.
- Reconcile the records. Match the pay statement’s compensation and withholding to the award transaction detail. Then compare the broker’s reported sale proceeds and basis with the stock-plan supplement.
RSU tax planning covers building the full-year projection, and the W-2 tax strategies guide covers the other payroll levers.
How Nino handles RSU taxes
RSU tax goes wrong in two places: payroll withholds too little during the year, and the broker reports the wrong basis at filing. Nino covers both with one team.
A dedicated financial planner and a CPA project every vest against your household’s full-year tax, tell you what to put on your W-4 before the gap grows, and help you decide how much company stock to keep. At filing, the CPA prepares your return and corrects the RSU basis so the same income isn’t taxed twice. See how it works.
Book a free consultation to check your next vest before it settles.