How are RSUs taxed? Definition, how it works and examples

Two tax events, not one: the income you are taxed on when the shares are delivered, the gain when you sell — and why withholding rarely covers the bill.

The short answer

How are RSUs taxed? Restricted stock units are taxed twice: when the shares are delivered to you, their full market value is ordinary income, like salary; when you later sell them, any change in value since delivery is a capital gain or loss. Nothing is taxed at grant, and no 83(b) election is available. At a private company the first event usually waits for a second trigger — an IPO or an acquisition — so years of vested units can become taxable on one day. Employers withhold at a flat 22% on the first $1 million, which often falls well short of the real bill.

What is the RSU tax treatment?

An RSU is a promise to deliver shares later, not a transfer of shares now. The IRS treats it as deferred compensation: it is not property at grant, so there is nothing to tax and nothing to elect on, as IRS Publication 5992 sets out. How RSU grants are taxed is therefore simple: they are not. RSU taxation starts only when shares change hands. Event one: settlement When the units vest and the shares are delivered, the value of the shares that day is wages. It goes on your W-2, is subject to income tax at your ordinary rate, and carries Social Security and Medicare tax.

When do RSUs become taxable at a private company?

A private company cannot deliver taxable shares to employees who have no way to sell them, so most private-company grants are double-trigger: a unit settles only once both the time-based schedule and a liquidity event — an IPO or a sale of the company — have happened. Until the second trigger, units can be fully “vested” in the plan’s language and still not be income. The result is a bunching of income. Four years of units can settle in the first weeks after a listing, at the public price, in a single tax year — while the shares themselves are still under an IPO lock-up.

IPO lock-up

What is the RSU tax rate?

There is no separate RSU tax rate. The income is added to your salary and taxed at your marginal rate, which is why how much RSUs are taxed varies so much from person to person. The rates that apply in 2026:

RSU tax withholding: why 22% rarely covers the bill

Employers treat RSU income as supplemental wages and usually withhold federal income tax at the flat 22% rate in Publication 15, switching to a mandatory 37% only on supplemental wages above $1 million in the year. For anyone whose marginal rate is 32%, 35% or 37%, the gap between 22% and that rate is still owed — in estimated payments during the year or with the return. The employer covers the withholding in one of three ways: holding back shares (net settlement), selling some of the delivered shares on your behalf (sell-to-cover), or collecting cash from you.

RSU tax example: 10,000 units settling at an IPO

A single employee earns $216,100 in salary in 2026 and takes the $16,100 standard deduction, so taxable income before any RSUs is $200,000. The company lists, and 10,000 double-trigger units settle shortly after the listing, at $40 a share. Now the sale. If the 7,565 shares are sold thirteen months later at $50, the $75,650 gain is long-term. If they are sold at $25, the $113,475 is a capital loss — it offsets other gains, but only $3,000 a year can be set against salary. The $138,171 of income tax, calculated at $40, does not change either way.

RSU tax implications: mistakes to avoid

Treating withholding as the bill The 22% is a prepayment. Compare it with your marginal rate and set money aside for the difference. Counting the basis twice The settlement value is already on your W-2. If a broker form shows a basis of zero, use the settlement value or you pay tax on the same income again. Holding to “save tax” Keeping shares after settlement is an investment decision. It changes the tax on the later gain, never the tax on the income already recognised. Forgetting the bunching year An IPO can settle several years of units at once.

The terms this page uses

Restricted stock unit (RSU) A promise to deliver a share, or its cash value, once vesting conditions are met. Not taxed until settlement. Settlement The delivery of shares for vested units. The value that day is wages and becomes the cost basis. Double-trigger A grant that settles only after both the time schedule and a liquidity event, the usual form at private companies. Supplemental wages Pay outside regular salary — bonuses, RSU income. Federal withholding at 22%, or 37% above $1 million in a year.

Questions about RSU taxes

Do I have to pay taxes on RSUs? Yes, once they settle. The value of the shares delivered is ordinary income, reported on your W-2 with tax withheld. Units that have not yet settled — including double-trigger units waiting for a liquidity event — are not income yet. How are RSUs taxed when vested? As wages, at their market value on the day the shares are delivered, which is usually the vesting day. Income tax, Social Security up to the wage base and Medicare all apply, and the employer withholds by keeping or selling some of the shares. Can I file an 83(b) election on RSUs? No.

Do I have to pay taxes on RSUs?

Yes, once they settle. The value of the shares delivered is ordinary income, reported on your W-2 with tax withheld. Units that have not yet settled — including double-trigger units waiting for a liquidity event — are not income yet.

How are RSUs taxed when vested?

As wages, at their market value on the day the shares are delivered, which is usually the vesting day. Income tax, Social Security up to the wage base and Medicare all apply, and the employer withholds by keeping or selling some of the shares.

Can I file an 83(b) election on RSUs?

No. An RSU is not property transferred to you, so Section 83(b) does not apply. An 83(b) election is for restricted stock actually issued to you before it vests, or for unvested shares from an early option exercise.

Is there an RSU tax calculator?

The arithmetic is the worked example above: settlement value times your marginal rate, minus 22% withheld, plus Social Security and Medicare. A calculator is only as good as the rest of the return you feed it, so run it on the whole year, not on the RSUs alone.

Are RSUs taxed again when I sell?

Only on the change in price after settlement. Your basis is the value already taxed as wages, so a sale at that price produces no further tax; above it, a capital gain; below it, a capital loss.

Where every figure on this page comes from

Every rate and threshold was checked against the IRS and the US Code on 1 October 2026 and applies to tax year 2026. The worked example is illustrative arithmetic on those figures, not market data. State income tax is not covered.