RSUs are taxed twice. The value of the shares when they’re delivered to you is taxed as wages, like salary, and any change in price after that is taxed as a capital gain or loss when you sell. This guide is from Astor, a personal investing agent and SEC-registered investment adviser, and it explains how that works in 2026 and which planning moves are worth knowing.
The biggest surprise for most people is that 22% withholding can leave a high earner owing a lot in April. This is educational, not tax advice, so check your own numbers with a tax professional.
How are RSUs taxed?
When the shares are delivered. An RSU is a promise from your employer to give you shares once you meet a vesting condition. The IRS says the fair market value of stock-settled RSUs is included in your income in the year the shares are transferred to you, and RSUs are wages subject to Social Security and Medicare taxes. That value becomes your cost basis in the shares.
When you sell. The difference between your sale price and that cost basis is a capital gain or loss. If you held the shares one year or less, any gain is short-term and taxed at ordinary income rates. If you held them more than one year, it’s long-term.
Say 500 shares vest at $150. You have $75,000 of wage income, and your basis is $150 a share. Sell six months later at $180 and the $15,000 gain is short-term.
Check the cost basis on your Form 1099-B every year. If it doesn’t reflect the value already taxed at vesting, you could pay tax twice on the same money, and the Form 8949 instructions explain how to report the correct basis.
Why is 22% withholding often not enough?
Employers often treat RSU income as supplemental wages, the same category as bonuses, and IRS Publication 15 lets them withhold federal income tax on supplemental wages at a flat 22%. Once your supplemental wages pass $1 million in a calendar year, the excess is withheld at 37%.
Your actual rate depends on your total income. These are the 2026 federal brackets near the top.
| 2026 rate | Single, taxable income over | Married filing jointly, over |
|---|---|---|
| 24% | $105,700 | $211,400 |
| 32% | $201,775 | $403,550 |
| 35% | $256,225 | $512,450 |
| 37% | $640,600 | $768,700 |
Take a single filer with $230,000 of salary and $120,000 of RSUs vesting in 2026, using the $16,100 standard deduction and nothing else. Taxable income is about $333,900, and the RSU income lands in the 32% and 35% brackets. Federal income tax on that RSU slice comes to roughly $40,700, while 22% withholding covers $26,400. That’s a gap of about $14,300 before state tax. Your numbers will differ.
There are three common ways to close the gap.
- Ask for more withholding. You can file a new Form W-4 with your employer to add extra withholding from each paycheck.
- Make estimated payments. For 2026, the federal due dates are April 15, June 15 and September 15, 2026, and January 15, 2027.
- Set cash aside when shares vest. Some people sell enough shares at each vest to cover the expected gap and hold the cash until tax time.
It also helps to know the safe harbor. Under IRS Publication 505, you generally avoid an underpayment penalty if what you paid during the year covers 90% of this year’s tax or 100% of last year’s, and that rises to 110% of last year’s if your prior-year adjusted gross income was over $150,000. Withholding is treated as paid evenly through the year unless you choose otherwise, which is why extra withholding late in the year can still count.
Should you sell RSUs when they vest or hold them?
Holding doesn’t reduce the tax you owe at vesting, which is fixed the day the shares arrive. So the real question is whether you’d buy your employer’s stock with the same cash today.
Holding for more than a year can lower the rate on future gains. In 2026, long-term gains are taxed at 0% up to $49,450 of taxable income for single filers ($98,900 married filing jointly), 15% up to $545,500 ($613,700 joint), and 20% above that. On top of that, the 3.8% Net Investment Income Tax can apply to investment income once your modified adjusted gross income passes $200,000 single or $250,000 married filing jointly. The NIIT doesn’t apply to wages, so it doesn’t touch the RSU income at vesting.
That rate difference only applies to the gain after vesting, and a lower rate doesn’t help much if the stock falls. FINRA points out that heavy company stock means your investments and your paycheck depend on the same company. It also notes that some experts suggest keeping no more than 10% of your investment assets in a single stock, while saying that may be too high for some people. If you’re ever laid off, our guide on what happens to RSUs when you’re laid off covers what changes.
Which strategies can lower the tax on RSU income?
You can’t avoid the tax on RSU income, but you can lower your taxable income around it and be careful about what happens when you sell.
Max out pre-tax accounts
Pre-tax 401(k) contributions and HSA contributions reduce your taxable wages, which is the same income your RSUs add to. For 2026, the 401(k) employee limit is $24,500, plus an $8,000 catch-up at age 50 or older ($11,250 if you’re 60 to 63). The 2026 HSA limit is $4,400 for self-only coverage and $8,750 for family coverage, if you’re on an HSA-eligible health plan. New for 2026, if your prior-year wages from your employer topped $150,000, catch-up contributions must go in as Roth, which doesn’t lower taxable income.
Harvest losses, and watch the wash-sale rule
Capital losses offset capital gains. If losses exceed gains, you can deduct up to $3,000 a year against other income ($1,500 if married filing separately) and carry the rest forward. The wash-sale rule disallows the loss if you buy substantially identical securities within 30 days before or after the sale. If you sell your employer’s stock at a loss, shares that vest within that window may count as acquiring substantially identical stock, so check your vest calendar first.
Give appreciated shares instead of cash
If you already give to charity, IRS Publication 526 says you can generally deduct the fair market value of stock you’ve held for more than one year, and you don’t pay capital gains tax on the appreciation. Shares held a year or less are treated differently, and the deduction is generally limited to your basis. A donor-advised fund lets you give in a high-income year and recommend grants later. Starting in 2026, itemizers can only deduct charitable gifts above 0.5% of adjusted gross income, and itemized deductions are trimmed for people in the 37% bracket, so the math is worth running before you give.
Know the 2026 SALT limit
If you itemize and pay high state and property taxes, the 2026 deduction limit for state and local taxes is $40,400 ($20,200 married filing separately). It phases down once modified adjusted gross income passes $505,000, but not below $10,000.
Mind your state
State tax follows where you did the work. California’s Franchise Tax Board says it taxes equity compensation to the extent you performed services in California, even if you’ve moved away by the time it vests. If you’re moving, keep records of your move date and where you worked.
Time other income around vest-heavy years
If you control when other income lands, like exercising nonqualified options or selling other investments at a gain, consider moving it out of a year with large vests.
Why Astor
RSUs tend to pile up in one stock. Astor is a personal investing agent on iPhone and in iMessage. It connects through Plaid to the brokerage, retirement and crypto accounts you already have, so it can see how much of your portfolio is your employer’s stock across all of them, and it can’t move money.
It follows every position you own, including earnings dates, filings and headlines on your employer. When something crosses a line you care about, it texts you what happened, why it matters to your portfolio, and what you could do. You can ask about your holdings in plain English, and set a scheduled alert before your employer reports. Every alert links to its reasoning and sources, because the AI can be wrong.
Gaus, Inc. DBA Astor is an SEC-registered investment adviser (CRD #338424). Astor doesn’t do tax filing, so tax returns stay with you and your tax professional. It does the research and the watching, and you make every decision. See how Astor works.
Frequently asked questions
How are RSUs taxed when they vest?
The fair market value of the shares when they’re transferred to you is taxed as wages and reported on your W-2. It’s subject to federal and state income tax, Social Security and Medicare. That value becomes your cost basis for figuring gains or losses when you sell.
Why does my employer only withhold 22% on RSUs?
Employers often treat RSU income as supplemental wages, which IRS rules let them withhold at a flat 22%, rising to 37% above $1 million in a year. If your marginal rate is higher, you’ll owe the difference. You can add withholding on Form W-4 or make estimated payments.
Should I sell RSUs as soon as they vest?
Many people do, because holding doesn’t reduce the tax already owed at vesting and selling cuts concentration in one stock. Holding more than a year lowers the rate only on gains after vesting.
Can I avoid paying tax on RSUs?
No. RSU income is taxed as wages when the shares are delivered. You can lower your overall taxable income with pre-tax 401(k) and HSA contributions, charitable giving and careful timing, but the RSU income itself is taxable.
Does the wash-sale rule apply to RSUs?
It can. The rule disallows a loss if you acquire substantially identical securities within 30 days before or after selling at a loss. Newly vested shares near the date of a loss sale may trigger it, so check with a tax professional.
Sources
- IRS: Information Letter 2024-0010 on taxation of restricted stock and RSUs (June 18, 2024), accessed Oct 21, 2026
- IRS: Publication 525, Taxable and Nontaxable Income, accessed Oct 21, 2026
- IRS: Publication 15 (2026), Employer’s Tax Guide, accessed Oct 21, 2026
- IRS: Tax inflation adjustments for tax year 2026 (IR-2025-103), accessed Oct 21, 2026
- IRS: Revenue Procedure 2025-32, 2026 inflation adjustments, accessed Oct 21, 2026
- IRS: Publication 505 (2026), Tax Withholding and Estimated Tax, accessed Oct 21, 2026
- IRS: Topic No. 409, Capital Gains and Losses, accessed Oct 21, 2026
- IRS: Topic No. 559, Net Investment Income Tax, accessed Oct 21, 2026
- IRS: Instructions for Form 8949, accessed Oct 21, 2026
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500, accessed Oct 21, 2026
- IRS: Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits, accessed Oct 21, 2026
- Investor.gov (SEC): Wash Sales, accessed Oct 21, 2026
- IRS: Publication 526, Charitable Contributions, accessed Oct 21, 2026
- IRS: Correction to state and local income tax deduction amount in the 2026 Form 1040-ES, accessed Oct 21, 2026
- California Franchise Tax Board: Publication 1004, Equity-Based Compensation Guidelines, accessed Oct 21, 2026
- FINRA: Love Your Company Stock? Here’s What to Know (Aug 11, 2023), accessed Oct 21, 2026
Important information
Gaus, Inc. DBA Astor is an SEC-registered investment adviser (CRD #338424). Registration does not imply a certain level of skill or training. Astor provides non-discretionary advice: you make every investment decision. All investing involves risk, including the loss of principal, and past performance does not guarantee future results. Astor uses AI, which can make mistakes. This article is general information, not individualized investment, tax or legal advice. See our disclosures.
About comparisons
Information about other companies comes from their public websites and filings as of October 2026 and may have changed since; check each provider for current details. Comparisons and rankings reflect Astor’s opinion. Other companies’ names and trademarks belong to their owners, and no affiliation or endorsement is implied.
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