An RSU that you keep is a stock that you bought.

At vest, an RSU is pay

An RSU is taxable when it vests and the shares are delivered. The value on that day is ordinary income, the same as salary. Your employer withholds income tax, Social Security and Medicare from it.

The value at vest also becomes your cost basis. So if you sell on that day, the gain is close to zero, and the sale adds almost no tax. The 83(b) election, which lets some employees pay tax early, is not available for RSUs.

The example

Many plans sell part of the shares to pay the withholding. In this example, the plan sells 88 shares, and you keep 312 shares worth $46,800.

The withholding gap

Employers can withhold a flat 22% of federal tax from extra pay such as an RSU vest. Above $1 million of extra pay in a year, the rate is 37%. The flat rate does not know your bracket.

The example household has $380,000 of taxable income before the vest. The 24% bracket ends at $403,550, so most of the vest falls in the 32% bracket.

The real rate on the vest is 28.9%, not 22%. The household still owes $4,116 in April. If it did not plan for that, the bill arrives as a surprise.

There is a penalty for too little tax during the year. To avoid it, you must usually pay at least 90% of this year's tax or 100% of last year's tax. If your AGI last year was more than $150,000, use 110% of last year's tax. Increase the withholding on your salary, or pay estimated tax.

A share that you keep is a share that you bought

After the vest, you hold $46,800 of your employer's stock. Suppose that the company paid you $46,800 in cash on the same day. Would you use all of it to buy the stock of your employer?

If the answer is no, sell at vest. The sale costs almost no extra tax, because your basis equals the price. To keep the shares is the same decision as to buy them.

The one-year hold

Some employees keep the shares for a year, so that a later gain is taxed at the long-term rate. The year usually starts on the day that the shares arrive in your account.

Suppose that the stock rises 10% in that year. The gain is $4,680. Held one year or less, it is taxed at 32%. Held longer, it is taxed at 15%. The tax benefit is $795.60. At this income, the 3.8% net investment income tax applies in both cases, so it does not change the benefit.

A fall of only 1.7% in the stock costs as much as that benefit. A fall of 30% costs $14,040. The tax benefit is small, and the risk is the full value of the shares.

Your employer already pays your salary

If the company does badly, it can cut jobs and its stock can fall at the same time. Shares in your employer add to a risk that you already have. Our essay on employer stock shows how large that risk can get.

What to do

Before each vest, find your bracket. Compare it with the 22% that the employer withholds.

Close the gap during the year. Increase the withholding on your salary, or pay estimated tax.

Sell at vest, unless you would buy the stock with cash. Then put the money where your plan says it belongs.

If you keep shares, keep them for a reason. A lower tax rate on a future gain is a small reason.

What this leaves out

The example leaves out state tax, and the limit on pay for Social Security tax. It assumes that the shares arrive on the day that they vest. It also assumes that the plan sells shares only for the federal withholding. Your plan documents and your pay statement give the real figures.

Sources

• Charles Schwab, Restricted Stock and Performance Stock Taxes: A Guide, for tax at vest, the withholding of income and payroll tax, cost basis, the start of the long-term period, and 83(b).
• IRS, Publication 15, for the flat 22% rate on supplemental wages and the 37% rate above $1 million.
• IRS, IR-2025-103, for the 2026 brackets of a married couple with a joint return.
• IRS, Topic 306 and Publication 505, for the 90%, 100% and 110% rules for the penalty on too little tax.
• Kiplinger, 2026 capital gains thresholds, for the 15% band.
• IRS, Net Investment Income Tax, for the 3.8% tax on investment income.