How Are RSUs Taxed?
Last updated July 2026
Short answer
Restricted stock units (RSUs) are taxed at two moments. First, at vesting: the fair market value of the shares that vest is ordinary income (wages), reported on your W-2 and taxed at your ordinary income rate, and your employer usually sells or withholds some shares to cover the tax. Second, when you later sell: any change in value from the vesting date is a capital gain or loss, short-term if you held one year or less after vesting and long-term if you held longer. The common mistake is forgetting that your cost basis is the vesting-date value that was already taxed, so you do not pay tax on it twice. Brokers sometimes report a $0 basis on the 1099-B, which you have to correct. Walnut, an AI investing app, can show how large an RSU position has grown but is not a tax adviser. This is general information, not tax advice.
RSUs are one of the most common forms of equity compensation, and they trip up plenty of people at tax time because they are taxed twice in two different ways: once like salary and once like an investment. Getting the mechanics straight, especially your cost basis, is what keeps you from overpaying. This guide walks through the two taxable moments, how withholding works and why it often falls short for high earners, the double-tax trap when a broker reports a $0 basis, and how the holding period after vesting decides your capital-gains rate. It is educational, not tax advice, and your specifics should be confirmed with a tax professional.
What are RSUs?
A restricted stock unit is a promise from your employer to give you company shares once certain conditions are met, almost always a vesting schedule tied to how long you stay (and sometimes to performance). Until the units vest, you own nothing you can sell; once they vest, the shares are yours outright, with no purchase price to pay. That is the key difference from a stock option, which only gives you the right to buy shares at a set price.
Because RSUs arrive with no cost to you, their full value is treated as compensation the moment they vest. That simplicity at grant is what makes the tax treatment at vesting straightforward, but it also means you can owe a real tax bill on shares you have not sold and may not have planned to sell.
Taxable moment one: ordinary income at vesting
When RSUs vest, the fair market value of the shares that vested is treated as ordinary income, exactly like a cash bonus. It is added to your W-2 wages for the year and taxed at your ordinary income rate, along with Social Security and Medicare. If 100 shares vest when the stock is worth 50 dollars each, 5,000 dollars of wage income lands on your W-2, whether or not you sell a single share.
This is the larger of the two tax events for most people, because it hits the entire value of the shares at once. It is also why a big vesting event in a strong year can push you into a higher bracket or trigger additional taxes tied to income. How much it affects you depends on your total income, so treat the framing here as descriptive and confirm the numbers with a tax professional.
Withholding at vesting (and why it often falls short)
Because vesting creates wage income, your employer has to withhold tax on it, and the usual method is to hold back a portion of the shares themselves (sell-to-cover) rather than take cash from your paycheck. So if 100 shares vest, you might only receive around 70, with the rest sold to cover withholding. That withheld amount shows up alongside the income on your W-2.
The catch is that RSU withholding is typically done at a flat federal supplemental wage rate, which for many higher earners is below their actual marginal rate. When your true rate is higher than the flat rate used, not enough is withheld, and you can owe the difference when you file. People who see large vesting events sometimes set aside cash or adjust other withholding to close the gap. Whether you are under-withheld depends entirely on your full picture, so this is general information, not tax advice.
Taxable moment two: capital gains when you sell
The second taxable moment comes when you actually sell the vested shares. At that point you owe capital-gains tax only on the change in value since vesting, not on the whole sale price. Your cost basis is the vesting-date value that was already taxed as wages, and your gain or loss is the sale price minus that basis.
How long you hold after vesting sets the rate. Sell within one year of the vesting date and any gain is a short-term capital gain, taxed at your ordinary rate. Hold longer than one year after vesting and it becomes a long-term capital gain, taxed at the lower long-term rates (0, 15, or 20 percent for most filers, based on income). If the stock has fallen since vesting, you have a capital loss you can use to offset other gains. For the mechanics of how gains are taxed, see capital gains tax.
The double-tax mistake: your $0 basis on the 1099-B
The single most common RSU tax error is paying tax twice on the same money. It happens because many brokers report a cost basis of $0 (or leave it blank) on the 1099-B for equity-comp shares. If you take that at face value, your tax software treats the entire sale proceeds as a capital gain, even though the vesting value was already taxed as wages on your W-2.
The fix is to use your correct basis, which is the vesting-date fair market value, when you report the sale. Your employer or broker usually provides a supplemental statement listing the right basis for each lot. Correcting it can save a meaningful amount, but the adjustment is exactly the kind of detail worth confirming with a tax professional so it is reported the right way. See what is cost basis for the fuller explanation.
RSU taxation at a glance
| Moment | How it is taxed | What is taxed |
|---|---|---|
| At vesting | Ordinary income (wages) | The full fair market value of the shares that vest, reported on your W-2 and taxed at your ordinary income rate |
| Withholding at vesting | Payroll withholding | Shares are usually sold or withheld to cover tax, often at a flat supplemental rate that can under-withhold high earners |
| When you later sell | Capital gain or loss | Only the change from the vesting-date value, short-term if held one year or less after vesting, long-term if held longer |
The pattern is consistent: vesting is a wage event taxed at ordinary rates on the full value, and selling is an investment event taxed only on the movement since vesting. Keep the vesting-date value as your basis, watch the withholding rate against your real bracket, and mind the one-year mark after vesting if you care about the long-term rate. Every one of these depends on your full circumstances, so consult a tax professional before acting.
Where Walnut fits
RSUs quietly build large single-stock positions, because shares keep vesting into the same employer. The question many people miss is not how each vest is taxed but how concentrated their overall portfolio has become in one stock. That is a question about your real holdings, which is where an AI assistant that can read across your accounts helps. Walnut lets you connect any major US broker read-only, then chat in plain words through Claude, ChatGPT, or its built-in AI to see how much of your net worth sits in your employer's stock and how it has moved against the S&P 500. You can build baskets around a diversification plan and place trades that Walnut only sends to your broker after you approve them. It reads your accounts by default and does not move money on its own. Walnut is not an investment adviser or a tax adviser, and it does not tell you what to buy, sell, or when.
Try Walnut on top of your broker
Walnut connects your brokerage read-only so you can see how large an RSU position has grown and track it against the S&P 500, by chatting through Claude, ChatGPT, or its built-in AI. Walnut is not an investment adviser or a tax adviser and does not tell you what to buy or sell.
FAQ
How are RSUs taxed?
Restricted stock units are taxed at two separate moments. First, when they vest, the fair market value of the shares that vest counts as ordinary income (wages), is added to your W-2, and is taxed at your ordinary income rate. Second, when you later sell the shares, any change in value from the vesting date is a capital gain or loss. So vesting is taxed like salary and the later sale is taxed like an investment. This is general information, not tax advice.
Are RSUs taxed twice?
Not if you track your cost basis correctly. RSUs are taxed once as ordinary income at vesting, and then only the additional gain above the vesting-date value is taxed again when you sell. The double-tax mistake happens when a broker reports a $0 cost basis on your 1099-B, which makes it look like the entire sale price is a new gain. The vesting value was already taxed as wages, so your true basis is that vesting value. Confirm the numbers with a tax professional.
What is my cost basis for RSUs?
Your cost basis in vested RSU shares is generally the fair market value on the vesting date, the same amount that was already reported as ordinary income on your W-2. When you sell, your capital gain or loss is the sale price minus that basis. Many brokers report a $0 or missing basis on the 1099-B for equity-comp shares, so you often have to correct it on your return using the supplemental statement your employer or broker provides. This is educational, not tax advice.
Is enough tax withheld when RSUs vest?
Often not, for higher earners. Employers usually withhold on RSU vesting at a flat federal supplemental wage rate, which can be lower than your actual marginal rate. If your top rate is above that flat rate, the withholding may leave a shortfall you owe at tax time. Some people set aside cash or adjust other withholding to cover the gap. Whether you are under-withheld depends on your full income, so check with a tax professional.
What is the difference between short-term and long-term capital gains on RSUs?
The holding clock for capital gains starts on the vesting date, not the grant date. If you sell within one year of vesting, any gain above the vesting-date value is a short-term capital gain, taxed at your ordinary income rate. If you hold longer than one year after vesting, it is a long-term capital gain, taxed at the lower long-term rates. Selling right at vesting usually produces little or no gain because the price has barely moved. Not tax advice.
What happens if I sell RSUs immediately at vesting?
If you sell the shares the moment they vest, the sale price is close to the vesting-date value, so there is little or no additional capital gain or loss beyond a small amount from price movement between vesting and the trade. You still owe ordinary income tax on the vesting value, which is the larger tax event. Selling immediately is one way people avoid holding a concentrated single-stock position, but it is a personal decision, not a recommendation.
Are RSUs different from stock options?
Yes. RSUs are shares granted outright once they vest, with no purchase price, so they have value as long as the stock has value. Stock options give you the right to buy shares at a set strike price, and they are taxed under different rules at exercise. See the stock options guide for how NSOs and ISOs work. RSUs are simpler at vesting because the full value is taxed as wages. This is general information, not tax advice.
Does Walnut help with RSU taxes?
Walnut is not a tax adviser and does not prepare returns or tell you when to sell. What it can do is connect to your broker read-only so you can see how large a single-stock RSU position has grown relative to the rest of your portfolio, which is useful context for a concentration or tax conversation. Any decision about selling vested shares or reporting basis should be confirmed with a licensed tax professional.
From here, see how ordinary stock gains and dividends work in how are stocks taxed, the basis mechanics in what is cost basis, the option rules in how are stock options taxed, and the payroll-purchase cousin in what is an ESPP.
Walnut is informational and is not a registered investment adviser or tax adviser. This page explains how RSUs are generally taxed; it is not a recommendation to buy, sell, or hold any security, and nothing here is tax advice. Investing involves risk, including the possible loss of principal, and past performance does not indicate future results. Tax rules, rates, withholding methods, and thresholds change and depend on your individual circumstances; verify current details with the IRS or a licensed professional before making any decision. Do your own research or consult a licensed financial or tax professional.