Kestrel Bay Retirement Advisors explains how RSUs are taxed: their value at vest counts as wage income, and only price changes after vest are taxed as capital gains when you sell. Your cost basis per share is what the stock traded at the day it vested. A hypothetical 400 RSUs vesting at $150 add $60,000 to your W-2 and give you $60,000 of basis, so selling later at $160 creates only $4,000 of gain.
The table below puts both moments side by side, and the sections after it explain each line. The numbers belong to Gwen and Sam, a couple whose vest and sale land in the same tax year, but the mechanics are the same for any engineer, product manager or sales leader who just saw a vest on a pay stub and wondered what gets taxed twice. Short answer: nothing gets taxed twice, unless your broker's basis is wrong and you file it that way.
This article is mostly for people holding RSUs at a public company whose shares settle in stock. If you only hold ISOs or an employee stock purchase plan, much of it won't apply. The Kestrel Bay Retirement Advisors team wrote it, and it is general education, not tax advice.
What gets taxed on the day your RSUs vest?
Shares vested times the market price on the vest date is ordinary wage income, reported on Form W-2, whether you sell the shares or keep them. With 400 shares vesting at $150, that's 400 × $150 = $60,000. Nothing is taxed at grant, because you don't own anything yet; the tax clock starts when the shares land in your account.
Vest income also counts as FICA wages. Social Security tax applies until the year's wages pass the wage base, which is $184,500 for 2026, and Medicare tax applies with no cap at all. So a vest late in the year for a high earner often carries Medicare tax but no Social Security tax.
Shares your company withholds or sells to cover tax do not reduce your W-2 income. The withholding is only an estimate of what you'll owe, and it can fall short at higher incomes.
How are RSUs taxed when you sell the shares?
Your basis is the vest-date price per share, and gain or loss is the sale price minus that basis. Only growth or decline after the vest gets taxed again, because the vest-date value was already taxed as wages. That's why a sale at $160 on shares that vested at $150 produces $10 a share of gain, not $160.
The holding period starts the day after vest. Shares held one year or less produce short-term gain, taxed at ordinary rates. Shares held more than one year produce long-term gain, which usually carries a lower rate. A sale below the vest price is a capital loss, but it doesn't undo the income already taxed at vest.
Tax-first means this comes before any trading idea. Before Kestrel Bay Retirement Advisors suggests a sale, it lists every lot's vest date and basis and estimates the gain on each. Two lots of the same stock can have very different tax bills on the same day, and you can't see that from the ticker price.
A worked example: one vest, two tax events
Hypothetical: Gwen is 52 and a VP of sales at a software company that just went public. Her husband Sam, 53, teaches high school and will have a state pension. Earlier this year her double-trigger release paid out about $2 million of RSUs. In August, 400 more of her RSUs vest at $150. Step 1: 400 × $150 = $60,000 added to her W-2 wages. Step 2: that $60,000 is her basis, $150 a share. Step 3: in November she sells all 400 at $160, for $64,000. Step 4: $64,000 − $60,000 = $4,000 short-term gain.
In the table, the $60,000 lands on Gwen's W-2, while the $4,000 goes on Form 1099-B and Form 8949. Why 37%? The earlier release already put Gwen and Sam's joint income above $768,700 for 2026, so every later dollar of vest income or short-term gain lands in the top bracket. Federal tax is $60,000 × 37% = $22,200 on the vest and $4,000 × 37% = $1,480 on the gain. Her wages had also passed $184,500 by August, so this vest carried Medicare tax but no Social Security tax.
The sale month matters less than people think. Had Gwen sold the day of the vest at $150, the gain would have been about zero and the whole bill would have been the $22,200 already owed. Waiting only exposed her to $10 a share of movement, up or down (investing involves risk, including loss of principal).
| Item | At vest | At sale |
|---|---|---|
| Price per share | $150 | $160 |
| Taxable amount | $60,000 | $4,000 |
| Type of income | Ordinary wages | Short-term capital gain |
| Where it's reported | Form W-2 | Form 1099-B and Form 8949 |
| Federal tax at 37% | $22,200 | $1,480 |
RSU tax myths and what's actually true
The biggest myth is that the same dollars of RSU value get taxed two times. They don't. The vest value is taxed once as wages, and the sale taxes only the change since vest, which is $4,000 in Gwen's case. The confusion comes from seeing the same shares appear on a W-2 and then on a 1099-B.
The second myth is that the cost basis printed on Form 1099-B is correct. Brokers often show $0 or leave basis blank for RSU shares, and you correct it on Form 8949 with adjustment code B. A third myth says RSUs escape payroll tax because they're stock. In fact, vest income counts as wages for Social Security until your pay passes the $184,500 wage base (2026), and for Medicare with no cap.
One more comes up in almost every first meeting with someone at a newly public company: that an 83(b) election can lock in a low value at grant. It can't. An 83(b) election isn't available for RSUs because no property is transferred at grant.
Pros and cons of how RSUs are taxed
The tax treatment has real advantages and real annoyances, and both come from the same feature: the tax is set by the vest date, not by you.
We'd rather clients treat each vest as a cash bonus that's already been taxed, because that framing makes the hold-or-sell choice honest. If you wouldn't spend $60,000 of bonus money on one more stock purchase, ask why you'd keep the shares. We cover that decision on our page about whether to sell or hold RSUs.
- Pro: no cash outlay to acquire the shares.
- Pro: no exercise decision and no AMT exposure as with ISOs.
- Pro: basis is set automatically at vest, and selling at vest adds roughly zero gain.
- Con: tax is owed even if you never sell.
- Con: you don't choose vest dates, so income bunches into the years your schedule dictates.
- Con: withholding can fall short at high incomes.
- Con: a price drop after vest doesn't refund the vest-day tax.
Does the answer change with your age or the size of the vest?
Size changes two things. A vest that lands after your wages pass $184,500 (2026) skips Social Security tax, and a vest on top of a large release lands above the 37% threshold, which is $768,700 married filing jointly or $640,600 single for 2026. A smaller vest early in the year, with lower income around it, can be taxed at much lower rates than Gwen's.
Age matters mainly through retirement accounts. From 50, savers can put an extra $8,000 into a 401(k) on top of the $24,500 deferral from salary (2026). But because Gwen's prior-year FICA wages exceeded $150,000, her catch-up must be Roth, so it won't lower this year's taxable income. Between 60 and 63 the catch-up rises to $11,250, and it's also Roth for wages above $150,000.
From about 63 on, a big vest year's income sets Medicare premiums two years later. In 2026, a couple whose 2024 MAGI topped $410,000 pays a total Part B premium of at least $649.20 a month per person. Our IRMAA page covers that in detail.
Mistakes Kestrel Bay Retirement Advisors sees on RSU tax returns
The costliest one is filing Form 1099-B with $0 basis. In Gwen and Sam's example that reports $64,000 of gain instead of $4,000, and it overpays $22,200 at 37%. Use the broker's supplemental statement and adjust on Form 8949. If your 1099-B shows $0 or a blank basis for shares from a vest, don't file it as printed. Raise the basis to the amount already taxed in your W-2 wages, which is $150 a share for Gwen.
The second is selling vested shares for less than their basis within 30 days of the next vest, on either side. The new vest counts as buying substantially identical stock, so the loss is a wash sale and gets deferred. Check the vest calendar before any loss sale, and our tax-loss harvesting page covers how to plan around it.
The third is ignoring state rules after a move. Vest income earned while working in one state can be taxed there even if you've since moved, so check each state's rules. Run through this list before you file:
- W-2 shows the RSU income (often labeled in box 14).
- Form 1099-B received.
- Broker's supplemental statement with adjusted basis downloaded.
- Each sale matched to its vest lot on Form 8949.
- Short-term and long-term lots separated.
What to do this week, and what to ask an advisor
Start in your stock plan portal. Download the gain/loss report and the supplemental tax statement, compare total vest income to your year-to-date pay stub, and list the next four vest dates and share counts. It takes an hour, and it tells you whether next quarter's vest will land in the top bracket.
This page covers RSUs at public companies that settle in shares. It doesn't cover the timing of a double-trigger release at an IPO, multi-state sourcing in detail, or performance shares with different vesting terms. The figures are illustration, not tax advice, so confirm your own return with a tax preparer.
If you'd like help, Kestrel Bay Retirement Advisors works with clients anywhere in the US by video or phone; use the request form on this site to ask for a first conversation. Bring these questions with you:
- Will you reconcile my 1099-B basis against my W-2 RSU income before I file?
- Which of my lots have basis above today's price?
- How much of next year's vest income will land above the 37% threshold?
- Does any planned loss sale fall within 30 days of a vest?
Your questions about how are RSUs taxed, answered
Are RSUs taxed when they're granted or only when they vest?
RSUs are taxed when they vest, not when they're granted. At grant you only hold a promise to receive shares, so there's no income to report. On the vest date, the shares' market value becomes ordinary wages on your W-2, whether or not you sell.
What happens to my taxes if the stock falls below the vest price before I sell?
You still owe tax on the vest-date value, because that income was already earned as wages. Selling below your basis creates a capital loss, which can offset other capital gains and a limited amount of ordinary income. It doesn't refund the tax paid at vest.
Do I owe state income tax on RSUs if I moved to another state while they were vesting?
Possibly. Many states tax RSU income based on where you worked between grant and vest, so a former state may claim part of it even after you move. Rules differ by state and sourcing can get complicated, so ask a tax preparer to check each state's rules.
This information is general education only and does not account for your specific circumstances, goals or finances. It is not investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Before making any financial decision, consult a qualified professional about your own situation.