If your compensation package includes RSUs, vesting day isn't just a payday — it's a tax event. Here's what actually happens, and where the surprises tend to hide.

What Happens the Day Your RSUs Vest
When a batch of restricted stock units vests, the shares are no longer “restricted” — they become yours, and the IRS treats their full market value on that day as ordinary income. There's no special tax rate for RSU income at vesting; it's taxed exactly like the rest of your salary, stacked on top of your other earnings for the year.

That's the part most employees already know. What catches people off guard is the next step: how that tax bill actually gets paid.

Why Your Paycheck Withholding May Not Cover the Full Bill
 Most employers withhold RSU income using the IRS supplemental wage withholding rules. For many employees, that means a federal withholding rate of 22%, plus applicable state taxes. However, higher compensation levels can trigger mandatory withholding at 37% on amounts above IRS thresholds. Even so, the ultimate tax owed depends on your total taxable income for the year, so withholding may still fall short or occasionally exceed the final liability. 

In addition to federal and state income taxes, vested RSUs are generally subject to payroll taxes such as Social Security and Medicare, just like cash compensation.

This is one of the most common reasons we see tech employees end up with a tax bill they didn't plan for — not because they did anything wrong, but because the standard withholding wasn't built for their income level.

Capital Gains When You Later Sell Vested Shares
Once shares vest and you own them outright, any further gain or loss is treated separately, as a capital gain or loss:

• Sell immediately at vesting: If you sell immediately or shortly after vesting, there is typically little or no additional capital gain or loss because the sale price is usually close to the fair market value recognized as income at vesting. [ The fair market value included in your W-2 at vesting generally becomes your tax basis in the shares].
• Hold the shares and sell later: the difference between the vesting-day value and your eventual sale price is a capital gain (or loss) — short-term if held one year or less, long-term if held longer.

This is where concentration risk and tax planning start to intersect: the longer you hold, the more your overall wealth becomes tied to one company's stock price.

Concentration Risk
Holding vested shares simply because they're familiar. Once RSUs vest, the tax event has already occurred. The decision to continue holding the shares should be evaluated the same way you would evaluate buying the stock today with cash. Many employees unintentionally become overconcentrated in a single company, increasing exposure to company-specific risk.

Common RSU Tax Mistakes We See

• Forgetting the basis adjustment. Brokerage 1099-Bs don't always reflect the correct cost basis for RSU shares, which can lead to accidentally double-paying tax on the same income if it isn't corrected on your return.
• Not adjusting quarterly estimates or withholding after a large vest. A single big vesting event can change what you owe for the rest of the year.
• Treating every vest as “found money.” Because it's already taxed as income, the after-tax amount is what's actually available to save, invest, or spend — not the full vesting-day value.

Have RSUs Vesting This Year?
We help tech employees plan ahead for vesting events — before the tax bill arrives, not after.

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Frequently Asked Questions

Are RSUs taxed twice, at vesting and at sale?
No — but it can look that way if your cost basis isn't corrected. The vesting-day value is taxed once, as ordinary income. Only the additional gain or loss between vesting and the eventual sale price is taxed again, as a capital gain or loss.

Why do I owe more tax on my RSUs than what was withheld?
Employers typically withhold RSU income at a flat supplemental rate, which often doesn't match your actual marginal tax bracket once the vested income is added to your total earnings for the year.

Should I sell my RSUs as soon as they vest?
There's no single right answer — it depends on your broader financial plan, how concentrated your net worth already is in your employer's stock, and your tax situation for the year. Many tech employees choose to sell some or all shares at vesting specifically to avoid building up concentration risk.

Do RSUs count toward my income for retirement account contribution limits?
Yes. Because vested RSU value is treated as ordinary W-2 income, it counts toward the earned income used to determine your eligibility and contribution room for accounts like an IRA or backdoor Roth.

Need Help Navigating Your RSU or ESPP?

RSUs and ESPPs represent valuable opportunities for tech employees to enhance their compensation packages and build long-term wealth. However, navigating the complexities of these incentives requires specialized knowledge and expertise. At Resilient Wealth Planning, we are dedicated to helping you unlock the full potential of your RSUs and ESPPs, ensuring that you make informed decisions that align with your financial objectives. Contact us today to learn more about how we can help you achieve financial success.