How RSUs Are Taxed in 2026: Vesting, Withholding & Sales
Restricted stock units (RSUs) are the most common form of equity compensation in tech. They are also one of the most misunderstood: many employees are surprised twice — first when a chunk of their vesting shares disappears to taxes, and again the following April when they owe more. This guide walks through exactly how RSUs are taxed in 2026, with real numbers.
Vesting is the taxable event — not the grant
When your company grants you RSUs, nothing is taxed. You own a promise, not shares. Tax happens on the vesting date, when shares actually land in your account. On that day, the fair market value (FMV) of the shares that vest counts as ordinary income, just like salary.
Taxable ordinary income: 200 × $150 = $30,000.
That $30,000 is added to your W-2 wages for the year.
If you leave the company before shares vest, you forfeit them — and since you were never taxed, there is nothing to deduct or recover. Vesting schedules (often 4 years with a 1-year cliff) therefore determine not just when you get shares, but when the tax bill arrives.
How your employer withholds tax at vest
Your employer is required to withhold taxes on that $30,000 of vest income, usually through "sell to cover": a portion of your vesting shares is automatically sold to pay the withholding, and you keep the rest. The withholding rates are flat supplemental wage rates, not your marginal bracket:
- Federal income tax: 22% flat on supplemental wages (37% applies to supplemental wages above $1 million in a calendar year).
- State income tax: varies by state and employer — for example, California's supplemental withholding rate is 10.23%.
- Social Security: 6.2% on wages up to the 2026 wage base of $184,500. Once your total yearly wages pass that cap, Social Security withholding stops.
- Medicare: 1.45% on all wages, plus an additional 0.9% on wages above $200,000 (single) or $250,000 (married filing jointly).
Total withheld: $11,964 — roughly 40% of the vest never reaches you.
That withholding is only an estimate of what you owe. Whether it was too much or too little is settled when you file — which is where the surprise lives. We break down the withholding-vs-actual-tax gap in detail here.
What happens when you sell your RSU shares
After vesting, your shares are just shares. Your cost basis is the FMV on the vest date — $150 per share in our example. If you sell later, you owe capital gains tax only on the change after vesting:
- Sell at $170 within a year of vesting: $20/share short-term gain, taxed as ordinary income (your marginal bracket — up to 37% in 2026).
- Sell at $170 more than a year after vesting: $20/share long-term gain, taxed at the preferential 0%, 15%, or 20% federal rates. For 2026, the 0% rate covers taxable income up to $49,450 (single) or $98,900 (married filing jointly); the 15% band runs to $545,500 / $613,700.
- Sell at $130: a $20/share capital loss, which can offset other gains — see our guide to capital loss carryforward rules.
Many employees sell immediately at vest. There is no additional tax on an immediate sale (basis equals sale price), and it eliminates concentration risk in a single stock. Our sell-vs-hold calculator can model the tradeoff with your numbers.
RSUs on your W-2 and tax return
Your employer reports the vest-date value in Box 1 (wages) of your W-2, with federal withholding in Box 2 and state withholding in Box 17. When you later sell, your broker sends a 1099-B — and here is the classic trap: some brokers report a $0 cost basis, making it look like the entire sale is gain. You must adjust the basis to the vest-date FMV (the amount already taxed as wages), or you will pay tax twice on the same dollars.
5 common RSU tax mistakes
- Thinking nothing is taxed until you sell. The vest itself is the big taxable event; the sale is usually minor by comparison.
- Assuming 22% withholding covers it. If your marginal rate is 24%, 32%, or higher, you will owe the difference in April.
- Forgetting the state piece. State withholding on RSUs is often well below your actual state marginal rate.
- Double-paying on the sale. Always correct a $0 basis on your 1099-B to the vest-date FMV.
- Ignoring concentration. Holding every vest means your salary and your savings depend on one stock.
RSU tax FAQ
Do I owe tax when RSUs are granted?
No. Grants are not taxable. Tax is triggered when shares vest and their fair market value becomes ordinary income.
What if I leave my job before my RSUs vest?
Unvested RSUs are forfeited. Because you were never taxed on them, there is no deduction and nothing to report.
Do RSU vests count toward the Social Security wage base?
Yes. Vest income is wages, so it counts toward the 2026 $184,500 Social Security cap. High earners often stop paying Social Security tax mid-year partly because of large vests.
Should I sell my RSUs immediately at vest?
There is no extra tax cost to selling immediately, and it removes single-stock risk. Whether to hold is an investment decision, not a tax one — run your numbers in a sell-vs-hold calculator first.
Find out what you actually owe on your next vest.
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