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How are RSUs taxed?

Restricted stock units are taxed as ordinary income when they vest, based on the share price that day. That value becomes your cost basis. Any gain or loss after vesting is a capital gain or loss. Employers usually withhold shares to cover taxes, but the default rate can under-withhold high earners.

What actually happens on vest day

Nothing is taxable while RSUs are unvested, because you do not own anything yet. On the vest date, the shares become yours and the full market value counts as compensation, exactly like salary. It shows up on your W-2 whether or not you sell a single share. That is the part that surprises people: you can owe tax on money you never saw as cash.

Why your April bill can still be a shock

Most employers withhold by selling a portion of the vesting shares, at the flat supplemental wage rate the IRS sets for bonuses and similar pay. For a lot of high earners that flat rate sits below their actual marginal bracket. The withholding looks handled, the tax is only partly paid, and the gap shows up the following April. Estimating the shortfall in advance is usually the difference between a plan and a scramble.

The cost-basis trap worth knowing about

Your cost basis is the value already taxed at vesting. If you sell later, only the change since then is a capital gain. Brokerage 1099-B forms have a long history of reporting these sales with a zero or missing basis, which quietly double-taxes the same dollars unless the return is adjusted. It is worth checking every year, and worth telling whoever prepares your return to look for it.

Holding versus selling at vest

Because vesting resets your basis to that day's price, selling immediately usually triggers little or no additional capital gain. Holding is a decision to keep investing in your employer with after-tax money, and it starts the clock toward long-term capital gains treatment. Neither answer is automatically right. It depends on your concentration, your conviction, and what the rest of your plan needs that money to do.

How this works at Hunt Wealth

We map your vesting calendar against your projected bracket, estimate the withholding gap before it becomes an April problem, and set a written rule for what happens at each vest, so the decision is already made when the shares land.

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