RSU Tax Planning: What to Know Before a Large Vest
Restricted stock units can become a significant part of compensation for executives and employees at technology and other public companies.
The basic tax rule is relatively straightforward: RSUs generally are not taxable when granted. Instead, the value of the shares is generally included in compensation income when the units vest and the shares are delivered. The amount is typically reported as wages on Form W-2.
The more difficult planning questions often arise before and after the vesting date.
A large RSU vest can increase taxable income substantially, affect withholding, push income into a higher tax bracket, and interact with other taxes and investment decisions.
How RSUs Are Taxed When They Vest
Suppose you have 1,000 RSUs vest when company stock is worth $100 per share.
The approximate value included in wage income would be:
1,000 shares × $100 = $100,000
That $100,000 generally becomes ordinary compensation income, even if you keep all of the shares rather than selling them.
The tax event is therefore generally tied to vesting, not to when you eventually sell the stock.
Your employer may withhold or sell some shares to cover payroll and income taxes, but that does not necessarily mean enough tax has been paid for your individual situation.
Withholding May Not Equal Your Actual Tax
This is one of the biggest issues I look at with high-income employees.
Employers may treat separately paid supplemental wages using a flat federal withholding rate. For 2026, that optional flat rate remains 22% on supplemental wages up to $1 million, while supplemental wages above $1 million are generally subject to the highest 37% withholding rate.
That can create a problem for someone whose actual marginal federal tax rate is higher than 22%.
For example, an employee may see substantial taxes withheld from an RSU vest and reasonably assume everything has been covered. But if the household's overall tax rate is 32%, 35%, or 37%, the withholding on the vest may still leave a significant year-end shortfall.
This is why RSU planning should generally include a full-year tax projection, rather than looking only at the tax withheld on the vest itself.
Your Cost Basis Changes After Vesting
Once RSUs vest and their value has been included in taxable wages, that value generally becomes the starting tax basis in the shares received.
If the shares are later sold, the difference between the sale proceeds and the basis generally creates a capital gain or loss.
For example:
Value taxed as wages at vesting: $100 per share
Later sale price: $115 per share
Subsequent capital gain: approximately $15 per share
You should not be taxed twice on the full $115.
Accurate basis reporting therefore matters, particularly when brokerage statements or employer equity records do not present the information in the same way.
Holding the Stock Creates a Separate Investment Decision
Once RSUs have vested, there are really two different decisions:
The compensation decision has already occurred.
The shares have vested and their value has generally been taxed as wages.You now own company stock.
Deciding whether to continue holding that stock is a separate financial and investment decision.
From a tax-planning perspective, the important questions may include:
How much unrealized gain exists after vesting?
Would a sale create short-term or long-term capital gain?
Are there capital losses available elsewhere?
Could the sale trigger Net Investment Income Tax?
Are several large vesting events occurring in the same year?
Is the taxpayer planning another major transaction?
The 3.8% Net Investment Income Tax can apply to investment income when modified adjusted gross income exceeds certain thresholds, including $250,000 for married couples filing jointly and $200,000 for single or head-of-household taxpayers. Those thresholds are not indexed for inflation.
Large Vests Can Also Affect Additional Medicare Tax
RSU compensation reported as wages can also contribute to Additional Medicare Tax exposure.
A 0.9% Additional Medicare Tax applies to Medicare wages and certain other earned income above thresholds of $250,000 for married couples filing jointly, $125,000 for married filing separately, and $200,000 for most other taxpayers.
Importantly, employers begin withholding this additional tax based on an individual employee's wages exceeding $200,000, regardless of the employee's ultimate filing status. That means married couples can sometimes have either too much or too little Additional Medicare Tax withheld when the two spouses' incomes are considered together.
Questions to Review Before a Large RSU Vest
Before a significant vesting event, I would generally want to understand:
Expected salary and bonus for the year
Scheduled RSU vesting dates and estimated values
Spouse's income, if applicable
Federal and state withholding to date
Capital gains and losses
Other investment income
Expected deductions and credits
State residency or a planned move
Estimated payments already made
From there, the goal is to estimate the entire year's tax liability, not merely the tax on one vest.
Planning Before the Vesting Date
In many cases, the RSU vest itself cannot simply be moved because the vesting schedule is established by the employer.
The planning opportunity is therefore often about what happens around the vest:
Adjusting federal withholding
Making estimated payments
Coordinating other income or deductions
Evaluating the timing of stock sales
Reviewing capital losses
Planning charitable contributions
Understanding state-tax consequences
Preparing for future vesting years
The IRS treats federal income tax as a pay-as-you-go system, so taxpayers who will not have enough withholding may need additional withholding or estimated payments during the year.
Turning RSU Compensation Into a Tax Plan
RSUs are not inherently complicated from a tax-law perspective, but a large vest can make the overall tax picture significantly more complicated.
The most useful planning often happens before year-end, when there is still time to adjust withholding, make estimated payments, coordinate gains and losses, and understand the cash needed for taxes.
For employees receiving substantial equity compensation, projecting several upcoming vesting events together can also provide a much clearer picture than evaluating each one separately.
Expecting a Large RSU Vest?
If RSUs represent a meaningful portion of your compensation, we can project the potential federal tax impact, review your withholding, and help you understand how upcoming vesting events fit into your broader tax situation.
This article is for general informational purposes only and does not constitute tax, legal, or investment advice. Tax outcomes depend on individual circumstances and applicable law.