Strategy Snapshot
Restricted stock units are taxed as ordinary income at vesting, on the full value of the shares. The problem for high earners is that employers withhold at the 22% supplemental rate, which is often 10 to 15 points below their actual marginal rate, leaving a large balance due. A second, costly error happens at sale when the cost basis is reported as zero.
RSUs vest into your W-2 income, but the default 22% supplemental withholding undershoots a 32% to 37% bracket. The shortfall lands as a balance due, often with an underpayment penalty.
Your basis in vested shares equals the value already taxed at vesting. Brokers often report $0 basis on the 1099-B, so people pay tax twice unless they correct it.
Holding vested RSUs is the same decision as buying your employer's stock with after-tax cash. Many high earners end up dangerously concentrated without choosing to.
For an account executive in Naples earning $300,000 in base plus RSUs, the equity feels like a bonus that handles itself, until April, when the tax bill is thousands of dollars larger than expected. RSUs are simple to understand and easy to mishandle, and the two most common mistakes, under-withholding at vesting and double-taxing at sale, cost high earners real money every year.
Your company withholds on RSUs at 22%. You are taxed at 35%. Nobody sends you a bill for the 13-point gap until you file, and by then it is too late to plan.The trap in one line
How RSUs Are Taxed
An RSU is a promise to deliver shares once they vest. There is nothing to elect and, unlike restricted stock, no 83(b) election is available (see equity compensation for why). The tax happens in two stages:
- At vesting: the full fair market value of the vested shares is ordinary income, added to your W-2 wages.
- At sale: any change in value after vesting is a capital gain or loss, long-term if you held more than a year.
That first stage is the one that bites.
The 22% Withholding Gap
When RSUs vest, your employer must withhold tax, and most withhold at the flat 22% supplemental wage rate (rising to 37% only on amounts over $1 million). For a high earner, 22% is well below reality.
The fix is to plan for the shortfall before year-end: increase withholding elsewhere, make an estimated payment, or set the cash aside. The mechanics, including a useful withholding workaround, are in quarterly estimated taxes.
The Double-Tax Mistake at Sale
This one quietly overcharges people who do their own returns. When you sell vested shares, your cost basis is their value at vesting, the amount already taxed as ordinary income. But brokerage 1099-B forms very often report that basis as $0.
If you file the 1099-B as-is, you pay capital gains tax on the entire sale price, taxing the same income a second time.
Hold or Sell? It Is a Stock-Picking Question
Because RSUs are fully taxed at vesting, selling them the day they vest triggers little or no additional tax (the shares have barely moved). That reframes the decision:
Holding your vested RSUs is identical to taking your after-tax cash and buying your employer’s stock with all of it.
Framed that way, most people would not concentrate that heavily in a single company, especially the same company that pays their salary. Selling at vest and diversifying is often the disciplined choice. Holding is fine too, but it should be a deliberate investment decision, not inertia.
The Multi-State Wrinkle for Mobile Workers
If you moved states between when RSUs were granted and when they vested, watch out: many states source RSU income to where you worked during the vesting period, not where you live at vesting. A Florida resident who earned grants while working in California can still owe California tax on a portion when those shares vest. For high earners who relocated to Florida specifically for the tax benefit, this is a frequent and expensive surprise that deserves its own planning.
When to Seek Help
If you have a single small RSU grant, awareness is most of the battle: expect the withholding gap and fix your basis at sale. Get professional help when your equity is a large share of your compensation, when you are juggling RSUs alongside ISOs or NSOs, when you moved between states during a vesting period, or when you want to coordinate RSU sales with a backdoor Roth or charitable giving of appreciated shares. A projection done mid-year, while there is still time to adjust withholding and time your sales, is where the real savings happen.
Last updated: 2026