RSU Tax Calculator
What are your RSUs actually worth after taxes?
Total number of shares in your RSU grant.
RSU income is taxed as ordinary income at vest.
How RSUs are taxed at vesting
This describes the federal rules for individuals. It is not tax advice. Restricted stock units are not taxed when they are granted. Tax is triggered on each vesting date, when the shares actually become the employee’s property. The amount included in income is the fair market value of the shares that vest, multiplied by the number of shares, and it is treated as ordinary income, the same as a cash bonus. That income is added to wages and reported on Form W-2 for the year of the vest, not the year of the grant. This is different from stock options, where the taxable event and its timing can depend on when the option is exercised. With RSUs, the grant date mostly matters for setting the vesting schedule; the tax clock does not start until shares actually vest.
Withholding at vesting
Employers withhold on RSU income using the IRS rules for supplemental wages, the same category that covers bonuses and commissions. Per IRS Publication 15, the flat federal withholding rate on supplemental wages is 22 percent. Once an employee’s supplemental wages for the calendar year exceed $1,000,000, the withholding rate on the amount above that threshold rises to 37 percent. This is a payroll withholding rate, not a description of the employee’s actual marginal tax bracket.
Why withholding is often short of the real bill
A flat 22 percent withholding rate can undershoot the actual tax owed once RSU income is stacked on top of salary. RSU income counts as ordinary wages, and federal ordinary rates rise well above 22 percent for higher earners, up to a top marginal rate of 37 percent. An employee whose marginal rate sits above 22 percent will typically have less withheld at vesting than the eventual tax on that income, which shows up as a balance due when the return is filed unless it is covered by other withholding or an estimated payment.
Sell-to-cover and shares withheld
Many employers cover the withholding obligation with a mechanism called sell-to-cover: a portion of the vesting shares, equal in value to the taxes due, is sold automatically on the vest date, and only the remaining shares are deposited into the employee’s brokerage account. That sold portion typically appears as shares withheld for taxes on the vest confirmation or pay stub, separate from the total shares that vested. Some plans instead deliver all vested shares and require the employee to cover the withholding from other cash. Either way, the withholding shown on the vest confirmation is the same 22 or 37 percent supplemental rate described above, applied to the value of the shares that vested; it is a payroll mechanic, not a separate calculation of the tax actually owed.
Cost basis after vesting
Per IRS Publication 525, the fair market value that was included in ordinary income at vesting becomes the cost basis of the shares. Because that value was already taxed once as income, only the change in price between the vesting date and the eventual sale date is a capital gain or loss. A sale at exactly the vesting-date price produces no additional gain or loss; a sale above or below that price produces a gain or loss equal to the difference, multiplied by the number of shares sold.
Short-term versus long-term after vesting
The holding period for RSU shares starts on the vesting date, not the grant date. Per IRS Topic 409, a sale within one year of vesting is a short-term gain or loss, taxed at ordinary income rates; a sale more than one year after vesting is a long-term gain or loss, taxed at the 0, 15 or 20 percent long-term rates. State income tax applies on top of the federal treatment described here and varies by state.
A worked example
Consider 500 shares vesting when the stock’s fair market value is $100 per share. The income added to wages is 500 shares multiplied by $100, or $50,000. Withholding at the flat 22 percent supplemental rate is $50,000 multiplied by 0.22, or $11,000. If the employee’s actual marginal federal rate on that income is 32 percent, the real federal liability is closer to $50,000 multiplied by 0.32, or $16,000, leaving a gap of roughly $5,000 between what was withheld and what is owed. Under sell-to-cover, about $11,000 worth of shares, or 110 shares at $100, are sold to fund the withholding, and the remaining 390 shares are deposited into the account.
Frequently asked questions
How are RSUs taxed?
RSUs are taxed as ordinary income when they vest, not when they are granted. The amount included in income is the fair market value of the shares on the vesting date, added to wages on Form W-2. There is no way to defer this income to a later year by choice; the vesting date set in the grant agreement controls the timing.
What is the RSU tax rate?
There is no separate RSU tax rate. Vested RSU income is taxed at the same federal ordinary income rates as salary, based on total taxable income for the year, with a top marginal rate of 37 percent. Employers generally withhold at a flat 22 percent supplemental wage rate, which can be lower than the marginal rate actually owed. State income tax, where it applies, is added on top.
How much tax is withheld when RSUs vest?
Employers withhold federal income tax on RSU income as a supplemental wage: a flat 22 percent on supplemental wages up to $1,000,000 for the calendar year, and 37 percent on the amount above that threshold. This withholding rate does not adjust for an individual employee’s actual marginal bracket, so it can end up lower or higher than the tax truly owed on the income.
What is the cost basis of RSUs?
The cost basis of vested RSU shares is the fair market value that was already included in ordinary income at vesting. Any later increase or decrease in price between the vesting date and the sale date is a separate capital gain or loss, not additional ordinary income.
Are RSUs taxed twice?
No, but the two-part structure can look that way. The value at vesting is taxed once, as ordinary income; the change in value after vesting, if any, is taxed separately as a capital gain or loss when the shares are eventually sold. Because the vesting-date value becomes the cost basis, that same dollar amount is not taxed again at sale.
What happens if you sell RSUs immediately after they vest?
Selling at or near the vesting-date price typically produces little or no additional capital gain or loss, since the cost basis equals the price used to calculate the ordinary income at vest. The ordinary income tax on the vesting itself still applies whether the shares are sold or held. Any gain or loss from a near-immediate sale would be short-term, since the holding period only begins at vesting.