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The employer adds the market value of shares delivered from restricted stock units (RSUs) to W-2 wages at each vest. Shares kept after that are taxed as a capital gain or loss when sold, measured from the vest value. We prepare the return, fix the cost basis and plan the next vest.
22% Optional flat federal withholding on supplemental wages up to $1 million in 2026
37% Required withholding on supplemental wages above $1 million
More than 1 year Holding time after share delivery for long-term capital gain rates
Yes. The IRS treats stock-settled RSUs as taxable only when the stock is transferred to the employee. The fair market value of the shares that day is ordinary income.
Payroll treats the vest value as wages for the year. For 2026, the employee pays 6.2% Social Security tax up to the $184,500 wage base, plus 1.45% Medicare tax with no cap. Employers withhold the 0.9% Additional Medicare Tax on wages over $200,000. The tax itself applies above $200,000 for single filers and $250,000 for joint filers, and we settle the difference on the return.
Unvested RSUs are not taxed as income until shares are delivered, and units forfeited on leaving are not delivered. Social Security and Medicare tax can apply earlier once retirement eligibility removes the forfeiture risk.
At a private company, a double trigger RSU vests only once a service period and a liquidity event, such as an IPO, are both met. One IPO can put several years of vesting on a single W-2, which our pre-IPO tax planning team models in advance.
Under Rev. Rul. 2002-22, deferred compensation such as RSUs passed to a former spouse in a divorce is income to that spouse when paid. The transfer creates no income tax. Payroll taxes may still apply to the later payment if the compensation was not already counted for those taxes.
For a nonresident alien, the IRS sources RSU income by workdays in and outside the US between grant and vest. With 25% of those workdays in the US, 25% of the vest value is US income. The same workday split can shape the foreign tax credit for US taxpayers who worked abroad before vest. Our international tax team handles both sides.
An 83(b) election cannot be made for an RSU grant. No RSU holder can lock in a low grant-date value or start the holding period early.
Where payroll uses the flat supplemental rate, the RSU withholding rate for 2026 is 22% federal. Supplemental wages above $1 million in the year are withheld at 37%. States with an income tax withhold on the same vest under their own rules.
Payroll can use the flat rate or the aggregate method with regular wages. Under the flat 22% method, a $100,000 vest leaves a $13,000 gap at a 35% marginal rate.
Sell to cover, where the plan sells shares at vest to pay the withholding, funds only that withholding. The shares sold to cover are a sale too, and they go on Form 8949 even when the gain or loss is close to zero.
We size a W-4 change before year-end or an estimated payment by the next quarterly due date. An estimated tax penalty can apply when payments miss the safe harbor.
The RSU tax rate combines ordinary income tax at vest and capital gains tax at sale.
On 1,000 shares vesting at $100 and sold at $130, at a 35% bracket with 22% withheld, $13,000 is due at filing and the sale adds $23,400 of long-term gain. A $0 basis on the 1099-B would overstate that gain by $78,000.
1,000 RSU shares, from vest to sale
1,000 shares vest at $100. Federal income tax only, for illustration: a 35% bracket and 22% flat withholding.
| 1. VEST | Wages on the W-2 |
|---|---|
| 1,000 shares x $100 | $100,000 |
| Sold to cover 22% withholding (220 shares) | $22,000 |
| Shares kept, basis $100 each | 780 |
| 2. FILING | Withholding gap |
| Federal tax at 35% | $35,000 |
| Withheld at 22% | $22,000 |
| Still owed in April | $13,000 |
| 3. SALE, 14 MONTHS LATER | Long-term gain |
| 780 shares x $130 | $101,400 |
| Basis: vest value already taxed | $78,000 |
| Long-term capital gain | $23,400 |
| IF THE 1099-B BASIS IS $0 | Taxed twice |
| Gain reported with no basis | $101,400 |
| Overstated gain | $78,000 |
| Fixed on Form 8949 with adjustment code B |
Sources: IRS Pub. 15 (2026); IRS Pub. 551; Instructions for Form 8949 and Schedule D
Shares kept after vest are capital assets, with the vest value as their basis. The holding period starts when the shares are delivered, and RSU long term capital gains rates apply only after more than one year.
| Sold within a year | Held more than a year | |
|---|---|---|
| Tax rate | Ordinary income rates | 0%, 15% or 20% |
| Basis | Vest value on the W-2 | Vest value on the W-2 |
| Reported on | Form 8949, Part I | Form 8949, Part II |
The 3.8% net investment income tax also applies to the gain once modified AGI, vest wages included, exceeds $200,000 single or $250,000 joint.
Selling RSUs at a loss below the vest value creates a capital loss. It offsets gains first, then up to $3,000 of other income a year, with the rest carried forward.
Get into each one of the stocks that you're about to sell and make sure that you are using the proper capital gain strategy, because the amount of time that you held on to the stock is really going to influence how much tax you pay.
Only through a reporting error. A wrong basis causes RSU double taxation: the vest value is taxed as W-2 wages and again as gain when the shares are sold.
The basis of shares received for services is the value taxed as income. A Form 1099-B can still show a zero or missing basis for RSU shares.
The RSU cost basis is the vest value. We enter it on Form 8949 lot by lot, using code B when the 1099-B shows a wrong basis.
Filing with the broker's figure, or leaving a sale off, can bring a CP2501 or CP2000 notice. We answer it and amend past years.
Send the 1099-B and the vest statement, and a CPA confirms the basis on each lot before the return goes in.
We match the W-2, the vest statement and each broker sale before filing the federal return and any state return.
The employer reports share-delivery income in box 1; boxes 3 and 5 depend on payroll-tax timing and the Social Security wage base. No separate income entry is needed.
The broker's supplemental statement lists the vest value of each lot sold.
Each sale goes on Form 8949, with code B where the 1099-B basis is wrong.
Totals flow to Schedule D, where gains and losses net for the year.
Vest income earned partly in another state goes on that state's nonresident return.
California taxes all RSU wages of a resident at vest. A nonresident at vest owes California tax on the share tied to California workdays from grant to vest, even after a move. For California residents at sale, later stock gains face regular income tax rates; the state has no lower capital gains rate.
New York has its own multi-year allocation rules, and other states follow theirs. We file each state return and claim the credit for tax paid to another state.
We build each RSU tax strategy around the vest calendar. In RSU tax planning we weigh sales, withholding, losses and moves before year-end.
Shares sold at vest have little extra gain. Holding them more than a year moves later growth to long-term rates, with the risk of one stock.
We set estimated payments for vest months so no large balance is due in April.
Losses on other holdings can offset RSU sale gains when timed outside the wash sale window.
A move before vest leaves the old state with a claim on income earned there, so we model both states first.
I highly recommend Dimov Tax Services, especially for complex equity based compensation. Clark was able to help me amend my 2022 return which I had previously filed with a different service and overpaid, and was able to get me back $20,000.
Our accountants for RSUs work from the vest schedule, the broker statements and the prior return.
Gather the W-2, Form 1099-B and the broker's supplemental vest statement.
Match each sale to its vest lot and correct the cost basis.
Compare withholding with the bracket and size any estimated payment.
Split vest income across states and file each state return.
Review past returns for overpaid RSU tax and amend where needed.
We quote RSU taxes as a fixed fee before work starts, based on:
The lightest file is one vest lot sold in one state with a correct 1099-B. These are the factors, not a quote.
A refund claim has to be filed within 3 years of the original return or 2 years of paying the tax, whichever is later.
Send the W-2, the 1099-B and the vest statement for an RSU tax review before the quarter closes.
