How are RSUs taxed?+
Restricted Stock Units are taxed as ordinary wage income at vest. The fair market value of shares on the vesting date is included in your W-2 wages and is subject to federal income tax, Social Security tax (up to wage base), Medicare tax (including Additional Medicare 0.9% above $200K), and state income tax. Most companies withhold shares to cover federal tax at the 22% supplemental rate, which is insufficient for employees in the 32%+ bracket — you'll owe more at tax time. Any subsequent appreciation from vest date is treated as capital gain (short or long-term) when you eventually sell.
Should I sell my RSUs immediately when they vest?+
From a pure tax standpoint, selling immediately is neutral — you've already paid ordinary income tax on the full vest value, so there's no additional tax on selling at the same price. From a portfolio standpoint, immediately selling and reinvesting elsewhere is usually optimal because it diversifies away from concentration in your employer's stock. The conventional advice: 'would I buy this stock with cash today?' If no, sell. Holding RSUs you wouldn't otherwise buy is the same as receiving cash and using all of it to buy that single stock — a position most people wouldn't take voluntarily.
Do RSUs count as income?+
Yes — RSU vests are W-2 wage income, fully taxable as ordinary income in the year of vest. They count toward your total compensation for purposes of: federal and state income tax, Social Security tax (up to the $184,500 wage base in 2026), Medicare tax including Additional Medicare 0.9% above $200K, retirement plan contribution limits as a percentage of comp, mortgage qualification (most lenders count vested RSUs as income), and child support / alimony calculations. Pre-vest, RSUs are essentially a promise of future income with no current tax.
What is the 22% RSU withholding rate?+
Most employers withhold federal tax on RSU vests at the IRS supplemental wage withholding rate of 22% (37% on amounts above $1 million per employee per year). This is a default withholding rate, not your actual tax rate. If your marginal federal rate is 24%, 32%, 35%, or 37%, the 22% withholding is insufficient — you'll owe more when you file. Many tech employees end up owing $20,000-$100,000+ at tax time because their RSU income pushed them into higher brackets without proportional withholding. Mitigation: make estimated tax payments quarterly, or update W-4 Step 4(c) to add extra withholding.
How can I reduce taxes on my RSUs?+
Strategies: (1) Maximize pre-tax 401(k), HSA, FSA — every dollar contributed reduces taxable income, including RSU income; (2) For ISO holders, exercise ISOs in years before large RSU vests (the AMT spread on ISOs is more painful in high-income years); (3) Make charitable contributions of appreciated RSUs you've held over 1 year — no capital gain recognized, full FMV deduction; (4) Time discretionary income (like Roth conversions) for low-RSU years; (5) Tax-loss harvesting in the same year to offset capital gains exposure. The hardest part is forecasting: RSU vests are large, lumpy, and need quarterly planning, not just April.
