Sources & Methodology
Methodology: RSU gross value = shares x fair market value on vest date. Federal marginal rate determined by placing RSU income on top of other annual income using 2025 IRS tax brackets with standard deduction (Single $15,000, MFJ $30,000, HOH $22,500). 2025 brackets: 10% to $11,925, 12% to $48,475, 22% to $103,350, 24% to $197,300, 32% to $250,525, 35% to $626,350, 37% above. Social Security = RSU value x 6.2% up to remaining SS wage base ($176,100 minus other income, minimum zero). Medicare = RSU value x 1.45%. Additional Medicare surtax = RSU value x 0.9% if total income exceeds $200,000 (single) or $250,000 (married). State tax = RSU value x selected state rate. Employer withholding shown separately from actual tax owed. Net after-tax = gross RSU value minus all taxes.
Last reviewed: March 2026 — brackets and rates verified against 2025 IRS Publication 15-T, IRS Rev. Proc. 2024-40, and SSA FICA rate announcements.
RSU Tax Calculator -- How Restricted Stock Units Are Taxed in 2025
Restricted Stock Units (RSUs) are the most common form of equity compensation at technology companies and large public corporations. Unlike stock options which require a purchase decision, RSUs deliver actual shares automatically upon vesting — but they come with an immediate and often surprising tax bill. Understanding how RSUs are taxed helps you plan your withholding, avoid underpayment penalties, and make informed decisions about whether to sell or hold vested shares.
RSU Taxation Step by Step -- The Complete Formula
The 22% Withholding Problem -- Why You May Owe at Tax Time
Most employers withhold federal taxes on RSU income at the IRS supplemental wage rate of 22 percent. This flat rate applies regardless of your actual marginal tax bracket. If you are in the 24, 32, or 35 percent federal bracket, the 22 percent withholding is insufficient — you will owe additional taxes when you file your return. For a $100,000 RSU vest in the 32 percent bracket, the withholding shortfall is $10,000 in federal taxes alone, plus any state tax underpayment.
To avoid underpayment penalties, consider increasing your W-4 withholding in the months after a large RSU vest, or making estimated quarterly tax payments. The IRS requires you to pay at least 90 percent of your current year tax liability or 100 percent of your prior year tax (110 percent if prior year AGI exceeded $150,000) to avoid underpayment penalties.
RSU State Tax Comparison -- 2025
| State | RSU Tax Rate | Tax on $42,500 RSU | Notes |
|---|
| Texas, Florida, WA, NV | 0% | $0 | No state income tax |
| Massachusetts, Illinois | 5.0% | $2,125 | Flat rate states |
| New York | 4.97 - 10.9% | $2,100 - $4,600 | Graduated, NYC adds ~3.9% |
| California | 9.3 - 13.3% | $3,950 - $5,650 | Highest state income tax |
| Oregon | 9.9% | $4,208 | Top bracket |
| Minnesota | 9.85% | $4,186 | Top bracket |
Should You Sell RSUs Immediately or Hold Them?
The financial planning consensus generally favors selling RSUs promptly after vesting. The reasoning: at vesting you already have full income tax exposure regardless of whether you sell or hold. Holding the shares adds stock price risk on top of your existing employment risk at the same company. If your employer's stock declines 30 percent after vesting, you have lost real wealth while your tax bill at vest remains unchanged. Diversifying by selling RSUs and reinvesting proceeds broadly eliminates this concentration risk.
The case for holding is straightforward: if you hold for more than 12 months after the vest date, any appreciation is taxed at long-term capital gains rates (0%, 15%, or 20%) rather than ordinary income rates. On a $42,500 RSU vest that appreciates to $60,000, you owe ordinary income on $42,500 (the vest value) and long-term capital gains on the $17,500 appreciation. This can save $5,000 to $9,000 in taxes on the gain alone for high earners. The decision depends on your confidence in the company, your existing concentration in employer stock, and your overall portfolio diversification.
💡 83(b) election does NOT apply to RSUs: The Section 83(b) election — which allows restricted property to be taxed at grant (when value is typically low) rather than at vesting — does not apply to standard RSUs. RSUs are a promise to deliver property in the future, not a current transfer of property. The 83(b) election applies to restricted stock (actual shares transferred at grant with vesting restrictions). Confirm which type of equity you hold with your equity plan administrator before making any tax planning decisions.
Frequently Asked Questions
How are RSUs taxed? +
RSUs are taxed as ordinary income at vesting, not when granted. The fair market value of shares on the vest date is added to your W-2 income for that year and taxed at your marginal federal and state rates plus Social Security and Medicare. Selling shares immediately after vesting triggers no additional capital gains tax. Holding shares and selling later triggers capital gains tax on appreciation from vest price to sale price.
What is the RSU withholding rate? +
Employers typically withhold federal income tax on RSU income at the IRS supplemental wage rate of 22 percent for cumulative supplemental wages up to $1 million and 37 percent above $1 million in a year. Your actual marginal rate may be higher than 22 percent if you are in the 24, 32, or 35 percent bracket, creating a tax underpayment that you must pay at filing time. Increase W-4 withholding or make estimated quarterly payments in high-vest years.
Do RSUs count as income? +
Yes. RSU shares that vest are ordinary income in the year they vest, equal to fair market value on the vest date. This income appears on your W-2 and is subject to federal income tax, state income tax, Social Security up to the annual wage base ($176,100 in 2025), and Medicare tax. RSUs are taxed identically to a cash bonus received in the same amount and year.
Should I sell RSUs immediately or hold them? +
Most financial advisors recommend selling RSUs promptly for diversification -- holding employer stock creates dual exposure to both equity market risk and employment risk. The tax outcome at vesting is identical whether you sell or hold (ordinary income on vest-date value). If you hold over 12 months and the stock rises, appreciation is taxed at lower long-term capital gains rates. If the stock falls after vesting, you lose real value with no tax benefit at vest.
What is the difference between RSUs and stock options? +
RSUs grant actual shares at vesting and always have value above zero stock price. Stock options grant the right to buy at a fixed strike price and are only valuable if the stock trades above that price. RSUs are taxed as ordinary income at vesting. Non-qualified stock options are taxed as ordinary income when exercised. Incentive stock options involve alternative minimum tax considerations. RSUs have become the dominant equity compensation form at most public technology companies.
Can I defer RSU taxes? +
Traditional RSUs cannot use Section 83(b) elections which apply only to restricted stock. Some companies offer nonqualified deferred compensation plans under Section 409A allowing deferral of RSU income to a future tax year, subject to strict restrictions and forfeiture risk. Practical strategies include maximizing 401k pre-tax contributions in high-vest years to reduce taxable income, and making quarterly estimated tax payments to avoid underpayment penalties.
What happens to unvested RSUs when you leave a company? +
Unvested RSUs are typically forfeited upon resignation or termination. Some companies offer accelerated vesting in specific circumstances including acquisition, death, disability, or retirement. Negotiated severance agreements sometimes include partial vesting acceleration. Vested shares already delivered to you are yours to keep and sell regardless of employment status. Always review your grant agreement before making employment decisions.
Are RSUs better than a cash bonus? +
RSUs and cash bonuses are taxed identically as ordinary income. RSUs provide equity upside if the company performs well but also introduce stock price risk. If the employer stock declines after vesting, the RSU provides less real value than an equivalent cash bonus. Most financial planners recommend selling RSUs promptly to avoid excessive concentration in employer stock, particularly when employer equity already represents a significant portion of total compensation and net worth.