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Frequently Asked Questions

How are RSUs taxed?

RSUs (Restricted Stock Units) are taxed as ordinary income when they vest. The taxable amount is the fair market value of the shares on the vesting date. This income is reported on your W-2 and subject to federal income tax, Social Security, and Medicare withholding.

What is the RSU vesting date?

The vesting date is when RSUs convert from a promise of future shares to actual shares you own. On this date, the shares become taxable income at their fair market value. Your employer typically withholds shares to cover taxes (sell-to-cover or net settlement).

How are RSUs taxed at vesting?

At vesting, the value of vested shares is treated as ordinary income (W-2 wages). Taxes withheld may include: federal income tax (22% supplemental rate), Social Security (6.2%), Medicare (1.45%), state income tax, and Additional Medicare Tax (0.9% if over $200K).

How are RSUs taxed when sold?

After vesting, you own the shares with a cost basis equal to the FMV on the vesting date. If you sell the shares, any gain (or loss) from the vesting price to the sale price is a capital gain (or loss). Short-term if held =1 year, long-term if held >1 year.

What is the RSU tax withholding rate?

Most employers use the supplemental wage withholding rate of 22% for federal income tax on RSU vesting income (flat rate). Some use the aggregate method (your marginal rate). Additional withholding may be needed to cover taxes at your actual marginal rate.

Can I defer taxes on RSUs?

RSUs are generally taxable at vesting - you cannot defer the tax unless you have a deferred compensation plan (Section 409A) that delays settlement. Some companies allow deferral elections for executives. Once vested and settled, tax is due.

What is sell-to-cover for RSUs?

Sell-to-cover is the most common RSU tax method. When RSUs vest, the employer immediately sells enough shares to cover the required withholding taxes (federal, state, FICA), and you receive the remaining shares. This ensures taxes are paid without requiring cash from you.

What is net settlement for RSUs?

Net settlement (or net share withholding) withholds a portion of the vested shares to cover taxes. You receive fewer shares but don't have to pay cash. The withheld shares are valued at the vesting price, and the employer pays taxes on your behalf.

How do RSUs affect AMT?

For RSUs, the ordinary income at vesting is included in regular taxable income for the AMT calculation. There is no AMT preference item for RSUs (unlike ISOs). So RSUs generally do not trigger AMT issues unless you have other large AMT adjustments.

How are RSUs taxed in California?

California taxes RSU vesting income as ordinary income at the state's progressive rates (up to 13.3%). The income is sourced to California if you were a CA resident at vesting. Non-residents may still owe CA tax on RSUs earned from CA-based work.

What is the difference between RSU and NSO taxation?

RSUs: taxed at vesting on FMV (no exercise event). NSOs: taxed at exercise on bargain element (FMV - strike price). Both result in ordinary income at their respective tax events, then capital gains treatment on subsequent sale.

How are RSUs taxed if I leave the company?

If you leave before vesting, unvested RSUs are typically forfeited (no tax consequence). Accelerated vesting upon termination may occur (change in control, retirement). Vested but unsettled RSUs are generally settled soon after termination.

Can I elect Section 83(b) for RSUs?

Generally, 83(b) elections are not available for RSUs because RSUs are not considered "substantially vested" property until the vesting conditions are satisfied. RSUs do not meet the requirement of having property transferred before vesting.

How do dividends on RSUs work?

Many companies pay dividend equivalents on RSUs during the vesting period. These payments are taxed as ordinary income (not qualified dividends) in the year received. Some companies accumulate dividends and pay them at vesting.

How are RSUs reported on Form W-2?

RSU vesting income is included in Box 1 (federal taxable wages), Box 3 (SS wages up to the base), and Box 5 (Medicare wages). Tax withheld is in Boxes 2, 4, and 6. The vesting event is also reported on your pay stub.

How do I track RSU cost basis?

Your cost basis for RSU shares is the FMV on the vesting date (shown on your brokerage statement). The vesting price is your adjusted basis. Brokerages typically report the correct basis for RSU shares (adjusting for the ordinary income already taxed).

What is the RSU tax impact at different income levels?

At vesting, RSU income is added to your other income and taxed at your marginal rate (10-37% federal + state). At $100K income, $20K RSU vesting adds ~$4,400 fed tax. At $500K income, $20K adds ~$7,400 fed + 0.9% addl Medicare.

Can I donate RSU shares to charity?

If you donate RSU shares held >1 year post-vesting, you can deduct the fair market value and avoid capital gains tax. If you donate within 1 year of vesting, you deduct your basis (vesting price). Donating shares before selling is more tax-efficient than selling and donating cash.

How are RSUs taxed in a divorce?

RSUs earned during marriage are marital property in most states. Transfer of RSUs incident to divorce is tax-free (no gain recognized). The recipient spouse assumes the same tax basis and holding period. The transfer is not a taxable event for either spouse.

What is the RSU 409A compliance?

RSUs must comply with Section 409A of the Internal Revenue Code, which governs nonqualified deferred compensation. Most RSUs comply by specifying a fixed vesting schedule and settlement date (or permissible payment events like separation, death, disability).

How are RSUs taxed if the company is acquired?

In an acquisition, RSUs may: accelerate vesting (triggering immediate tax at FMV), be converted to acquirer RSUs (continuing deferral), or be cashed out (taxed as ordinary income on proceeds). The tax treatment depends on the acquisition terms and structure.

Should I sell RSUs immediately or hold?

Selling immediately at vesting is low-risk: you pay ordinary income tax on the full value (already happening) and have cash. Holding creates concentration risk in your employer's stock. The tax advantage of holding >1 year (lower LTCG rates) must be weighed against stock risk.

How are RSUs taxed for international employees?

For non-US employees, RSUs may be taxed in multiple countries: the US (if work was performed here) and the home country. Tax treaties may provide credits to avoid double taxation. Social tax treatment varies by country.

What is the maximum RSU withholding?

Employers typically withhold at the minimum statutory supplemental rate (22% federal). If your marginal rate is higher, you may need to make estimated tax payments or increase W-4 withholding. You can request additional withholding through your equity portal.