How are RSUs taxed?
Restricted stock units (RSUs) are taxed as ordinary income on the vesting date. Under IRC §83(a), the fair market value (FMV) of the shares at vest is added to your W-2 wages for that year, just like salary or a cash bonus. Your employer reports it, withholds taxes against it, and you owe ordinary income tax on the full vest value — whether you sell the shares or hold them.
An 83(b) election does not apply to RSUs. 83(b) is only available when actual property is transferred at grant; with RSUs, you hold a contractual promise of future shares, not the shares themselves, so there is nothing to elect on at grant. The taxable event is always vest.
After vesting, any subsequent change in the stock price becomes a capital gain or loss when you sell. Your cost basis equals the FMV at vest (which you already paid ordinary income tax on). If you hold the shares for more than 12 months after vest, the gain is taxed at long-term capital gains rates; sell sooner and it is short-term, taxed as ordinary income.
The RSU withholding gap (why you owe in April)
By default, employers withhold federal tax on RSU vests at the flat supplemental wage rate set by IRS Publication 15: 22% on the first $1,000,000 of supplemental wages in a calendar year, and 37% on any amount above that. This rate applies regardless of your actual marginal tax bracket.
For most six-figure tech workers, the real marginal federal bracket is 24%, 32%, 35%, or 37%. When 22% is withheld but you actually owe, say, 32%, the 10-point shortfall on every dollar of vest value compounds into a meaningful balance due at tax time. This is the "RSU withholding gap" — the single most common reason high earners are surprised by a tax bill in April.
Common approaches people use to close the gap include making quarterly estimated payments to the IRS, adjusting Form W-4 to withhold extra from each paycheck, or setting aside the difference in a separate account before filing. Which approach makes sense depends on your full picture — state taxes, other income, deductions — and is a conversation worth having with a CPA.
Federal, state, and FICA taxes on RSUs
Federal income tax
RSU vest value is taxed as ordinary income at your real federal marginal rate, which can run from 10% all the way to 37%. Employers withhold at the flat 22% supplemental rate (37% above $1M of supplemental wages in the year), which is why most high earners under-withhold and owe at filing.
FICA (Social Security + Medicare)
Social Security tax is 6.2% on wages up to the 2026 Social Security wage base of $184,500; once your year-to-date wages cross that ceiling, no more Social Security tax is withheld on additional RSU vests. Medicare is 1.45% on all wages with no cap. An Additional Medicare Tax of 0.9% applies above $200,000 of wages for single filers and $250,000 for married filing jointly.
State income tax
State income tax on RSUs varies widely. High-tax states like California, New York, Oregon, and Hawaii can add 9–13% on top of federal, materially shrinking the net you keep. Other states — Texas, Florida, Washington, Tennessee, Nevada, Wyoming, South Dakota, and Alaska — have no state income tax. If you moved states between grant and vest, allocation rules in your former state may still apply to a portion of the vest.
RSU taxes for high earners at tech companies
For employees at companies like Google, Meta, Amazon, Microsoft, Apple, and NVIDIA, RSU vests typically arrive quarterly across multiple overlapping grants. New-hire, refresher, and performance grants stack on top of base salary, often pushing total compensation into the 32%, 35%, or 37% federal brackets. The result: a wider withholding gap, larger Additional Medicare exposure above the $200K/$250K thresholds, and bigger swings in your effective rate from quarter to quarter as vest values move with the stock price.
Because RSU income shows up in the same year as your base salary, ESPP discount income, cash bonuses, and 401(k) decisions, it pays to look at total comp together rather than vest by vest. Coordinating vests with your 401(k) contribution pacing, mega backdoor Roth capacity, and your overall after-tax income picture gives you a clearer view of what you actually take home — and what to set aside before April.
Frequently asked questions
When are RSUs taxed?
RSUs are taxed at vest, not at grant and not at sale. The fair market value of the shares on the vesting date is treated as ordinary wage income for that year and appears on your W-2.
Why do I owe taxes on RSUs in April?
Employers withhold federal tax on RSU vests at the flat 22% supplemental rate. If your real marginal bracket is 24%, 32%, 35%, or 37%, you under-withhold on every vest, and the unpaid difference shows up as a balance due when you file.
Can I file an 83(b) election on RSUs?
No. An 83(b) election requires an actual transfer of property at grant. An RSU is a contractual right to receive shares in the future — no property has transferred — so there is nothing to elect on. 83(b) elections apply to restricted stock awards and early-exercised stock options, not RSUs.
How are RSUs taxed when I sell them?
When you sell vested RSU shares, you owe capital gains tax on the difference between the sale price and your cost basis (the FMV at vest). Hold for more than 12 months after vest and the gain is long-term; sell sooner and it is short-term, taxed as ordinary income.
Do RSUs get taxed twice?
No. RSUs are taxed as ordinary income once, at vest, on the full FMV. If you later sell the shares, only the additional gain or loss between the vest-date price and the sale price is taxed (as a capital gain or loss). The vest-date value is not taxed again — that is your cost basis.
What is sell-to-cover?
Sell-to-cover is the default withholding method at most employers: when an RSU grant vests, the broker automatically sells just enough shares to cover the required tax withholding and delivers the remaining shares to you. It is convenient, but because the federal piece is sold at the flat 22% supplemental rate, sell-to-cover does not protect you from the withholding gap if your real marginal bracket is higher.
This calculator and its explanations are educational and give estimates only — not investment, tax or legal advice. Real returns, inflation and tax outcomes vary; talk to a qualified professional about your own situation.