How RSUs Are Taxed: The Withholding Gap and What to Do

Yohance Harrison
June 27, 2026
RSUs are taxed as ordinary income at their value on the vest date, added to your W-2. Employers usually withhold a flat 22%, but high earners owe 24% to 37%, so the gap shows up as a tax bill in April. Selling shares at vest avoids single-stock concentration.

RSUs are simpler than options and still catch people off guard, almost always at tax time. The reason is a gap between what your employer withholds and what you actually owe.

Taxed at vest, as ordinary income

When RSUs vest, the value of the shares on that date is treated as ordinary income and added to your W-2. It is taxed at your marginal rate, the rate on your last dollar of income. You owe this whether or not you sell the shares.

The withholding gap

Employers withhold federal tax on vested RSUs at the supplemental rate: a flat 22% on amounts up to $1 million, and 37% above that. If your marginal rate is 24%, 32%, or higher, the flat 22% withholds too little, and the shortfall becomes a balance due in April. State tax and FICA apply on top.

After vesting, gains are capital gains

Your cost basis is the value already taxed at vest. From there, any increase is a capital gain. Held more than a year, the federal long-term rate tops out at 20%, plus a possible 3.8% net investment income tax, for an effective ceiling near 23.8%.

Sell-to-cover and concentration

Most plans sell a portion of shares at vest to cover withholding. Selling the rest at vest, rather than holding, limits single-stock concentration and usually adds no further tax, because the sale price equals the basis. Holding is a choice to take on more risk and a potential gain.

The behavioral note

Two forces push against you. The endowment effect makes shares you own feel too valuable to sell. And the withholding gap stays invisible until the deadline. Naming both turns a surprise into a plan.

What to do

  1. Estimate your true marginal rate and set aside the difference between it and the 22% withheld.
  2. Decide a selling approach for each vest in advance, rather than in the moment.
  3. Keep your concentration in any single stock within a limit you set ahead of time.

Your next step

If you have RSUs vesting this year, we can size the withholding gap and set a selling plan. Book a 15-minute complimentary discovery call.

Are RSUs taxed when they vest or when I sell?

Both. The value at vest is ordinary income on your W-2. Any gain after vest is a capital gain when you sell.

Why is 22% withholding not enough?

22% is the flat supplemental rate up to $1 million. High earners often sit in the 24% to 37% brackets, so the withholding falls short and you owe the difference at filing.

Does selling RSUs at vest create extra tax?

Usually not. Your cost basis equals the value taxed at vest, so selling right away produces little or no additional gain while reducing concentration.

Book a 15-minute discovery session