How RSU taxes work (plain English)
Restricted Stock Units (RSUs) are typically taxed as ordinary wage income when they vest. On the vest date, the fair market value (FMV) of the shares you receive is added to your W-2 wages, similar to how a cash bonus is treated.
For example, if 1,000 RSUs vest at $50 per share, that’s $50,000 of taxable wage income — even if you never sell the shares. Your employer will usually withhold taxes through payroll, but the withholding amount is not your final tax bill.
Why RSU withholding is often too low
Many employers withhold federal tax on RSUs using the supplemental wage rate, which is commonly 22%. For high earners, that rate is often below their true marginal federal tax rate. The result is a frequent surprise: a large vest event can create a meaningful under-withholding gap that shows up at tax filing.
Federal, state, and payroll taxes on RSUs
At vest, RSUs may be subject to federal income tax withholding, state income tax withholding (depending on where you live), and payroll taxes like Social Security and Medicare. Social Security is capped by an annual wage base, while Medicare applies broadly, with an additional Medicare tax for higher wage levels.
This tool provides a planning-level estimate based on common payroll mechanics. Your final tax outcome depends on your full return: deductions, credits, other income, and the specifics of your employer’s payroll setup.
What “sell-to-cover” means
Most companies use a method called sell-to-cover (or share withholding) when RSUs vest. Some of your shares are automatically sold or withheld to pay estimated taxes, and you receive the remainder as net shares delivered. This helps avoid paying cash out-of-pocket at vest time, but it means you receive fewer shares than the number that vested.
Frequently asked questions
Are RSUs taxed twice?
No. RSUs are taxed as ordinary income at vest. If you later sell the shares, you may owe capital gains tax only on any price change after the vest date.
Why did my employer only withhold 22% on my RSUs?
Many employers apply the federal supplemental wage withholding rate. Your actual tax owed depends on your full-year income and bracket, which may be higher.
Do RSUs count toward the Medicare surtax (Additional Medicare Tax)?
Yes. RSUs are wages at vest. If your total wages exceed the threshold (e.g., $200k single / $250k MFJ), an additional 0.9% Medicare tax may apply.
If I sell my RSUs immediately, do I owe capital gains tax?
If you sell immediately at roughly the vest price, capital gains are usually minimal. Any difference between the vest FMV and your sale price may result in a short-term gain or loss.
Is this calculator accurate for California?
The calculator includes a California state withholding estimate (editable). Final tax owed depends on your complete tax return and your specific situation.
Does this calculator show my final tax bill?
No. This tool estimates payroll withholding at vest. Your final tax owed depends on deductions, credits, total annual income, and other factors.