How RSUs Are Taxed at Vesting and When You Sell the Shares
Restricted stock units create wage income on your W-2 when shares are delivered, then a capital gain or loss when you sell. Where the numbers show up and the basis trap on Form 1099-B.
RSUs are taxed twice, at two different moments. When restricted stock units vest and the shares (or cash) are delivered, their market value is ordinary wage income on your Form W-2, and the employer withholds tax. When you later sell the shares, only the change in price since that date is a capital gain or loss. Your award agreement, pay stub and W-2 show the first part; Form 1099-B and Form 8949 handle the second.
When are RSUs taxed?
RSUs are taxed when they settle, which for most public-company grants is the vesting date. At grant you receive only a promise, so nothing is taxed then. The taxable amount at settlement is the number of shares delivered times the fair market value on that day, as your plan defines it (often the closing price).
That amount is compensation, the same as salary. It appears in box 1 of your W-2 and is subject to Social Security and Medicare as well as income tax. Many employers also list it separately in box 14 or on a supplemental statement, but box 1 already includes it.
Private-company RSUs often have a second condition, such as an IPO or acquisition, and are not taxed until both conditions are met. That is covered in our guide to what happens to RSUs in an acquisition.
How much tax is withheld from vesting RSUs?
Employers usually withhold federal income tax at the flat supplemental wage rate. According to IRS Publication 15 (2026), as of November 2026:
| Withholding item | 2026 rate or limit |
|---|---|
| Federal income tax on supplemental wages up to $1 million in the year | 22% flat rate (if the employer uses the flat-rate method) |
| Federal income tax on supplemental wages above $1 million in the year | 37%, mandatory, regardless of Form W-4 |
| Social Security | 6.2% on wages up to $184,500 |
| Medicare | 1.45% on all wages |
| Additional Medicare Tax | 0.9% withheld on wages above $200,000 in the year |
Most states withhold their own income tax on top. Withholding is only a prepayment toward your final tax bill. If your top federal bracket is above 22%, the flat rate leaves a gap that shows up as a balance due when you file. If your bracket is lower, the excess comes back as a refund. A tax professional can tell you whether estimated payments make sense in a year with large vests.
What is the difference between sell-to-cover and net settlement?
Both are ways to pay the withholding without writing a check. The plan document decides which one applies, and some plans let you choose.
| Method | What happens | What you end up with |
|---|---|---|
| Net settlement (share withholding) | The company keeps back enough shares to cover the tax and pays the tax in cash itself | Fewer shares; no sale appears on a 1099-B for the withheld shares |
| Sell-to-cover | The broker sells enough of the delivered shares on the market to cover the tax | Fewer shares; the small sale appears on Form 1099-B |
| Cash payment | You pay the withholding in cash, if the plan allows | All the shares |
An example with made-up numbers: 100 RSUs vest when the stock is at $50. That is $5,000 of wages. Suppose withholding of all kinds comes to 35%, or $1,750. Under net settlement the company keeps 35 shares and delivers 65. Under sell-to-cover the broker sells about 35 shares, and because the sale happens right after vesting at nearly the same price, the gain or loss on those shares is close to zero.
What is my cost basis in RSU shares?
Your cost basis is the value that was taxed as wages, normally the fair market value per share on the settlement date. You paid nothing in cash, but you already paid income tax on that value, so it becomes your basis. Your holding period for the shares starts at settlement as well, which determines whether a later sale is short term (one year or less) or long term.
Why does my Form 1099-B show $0 cost basis?
Brokers often report RSU shares with a basis of $0, a blank, or a figure that leaves out the income already on your W-2. If you copy that number onto your return, you pay tax on the same value twice: once as wages and again as a capital gain.
The IRS Instructions for Form 8949 describe the fix. If the basis shown on Form 1099-B was reported to the IRS and is wrong, you still enter the reported basis in column (e), then enter code “B” in column (f) and an adjustment in column (g) so the gain comes out right. If no basis was reported, you enter the correct basis directly. The instructions include a worksheet for the adjustment.
- Find the supplemental statement from your stock plan broker, which usually lists the vest-date value for each lot.
- Match each sale on Form 1099-B to its vesting lot.
- Compare the reported basis to the vest-date value times shares sold.
- If they differ, use code B and the column (g) adjustment on Form 8949.
How are RSU shares taxed when I sell them?
After settlement, RSU shares are ordinary shares. Selling them creates a capital gain or loss equal to the sale price minus your basis. Held one year or less, the gain is short term and taxed at ordinary rates; held longer than a year, it is long term and taxed at the lower capital gains rates. A sale at a loss can offset other gains.
Restrictions can affect when you are able to sell, such as company trading windows or, after an IPO, the IPO lockup period. Those limits do not change the tax treatment.
Can I file an 83(b) election on RSUs?
No. An 83(b) election applies to restricted stock that is transferred to you when granted, not to RSUs, which are only a promise until settlement. Our guide to the 83(b) election explains when it does apply. A narrow election under section 83(i) for certain private-company grants exists, according to IRS Publication 525, but it requires a written plan covering at least 80% of US employees and is uncommon.
Bottom line
Before you file, pull the vest-date values from your plan broker’s supplemental statement and check them against every RSU sale on Form 1099-B; a $0 basis line is the most common cause of overpaid tax on equity pay. If large vests are coming, compare your expected tax bracket with the 22% withholding rate in advance so the April balance is not a surprise.
FAQ
Are RSUs taxed twice?
The same dollars should not be taxed twice. Vest-date value is taxed once as wages; only the later change in price is taxed as a gain or loss. Double tax happens only when the 1099-B basis is not corrected.
Why was 22% withheld when my tax bracket is higher?
Employers may use the flat 22% supplemental rate for amounts up to $1 million a year. It is a withholding rate, not your tax rate, so any shortfall is settled on your return.
Do I owe tax on RSUs that have not vested yet?
No. Unvested RSUs are not income until they settle. If you leave before vesting and the units are forfeited, there is no tax and no deduction.
Where do RSUs show up on my W-2?
The vest-date value is included in box 1 wages, and in the Social Security and Medicare wage boxes up to their limits. Some employers also label it in box 14.
