What RSUs actually pay, after tax
Restricted Stock Units (RSUs) are shares given to you by your employer that vest over time. At vest, the share value is taxed as ordinary income — federal (up to 37%), FICA (up to 7.65%), state (0-13.3%), and often city/local. Total tax on RSUs at vest can easily exceed 40% for mid-to-high earners, especially in California or New York.
Example. You're granted 400 RSUs vesting over 4 years (100/year). At year 1 vest, stock price is $50 → $5,000 gross vested. Typical withholding on the vest: federal supplemental 22% + FICA 7.65% + California state 10.23% + local. Net roughly $2,900-3,100 on the $5,000 vest — about 60-62% take-home.
At higher brackets (37% federal + CA top rate), net can drop to 50-55% of gross. Plan accordingly — the grant on paper is not the check in your bank.
The withholding gap that surprises RSU holders
Your employer withholds on RSU vests at the flat federal supplemental rate (22%). But if your total income puts you in a 32-37% bracket, the withholding is too low and you'll owe additional federal tax at filing.
Example. A senior engineer has $250,000 base + $120,000 RSU vests in 2026. Federal bracket: 32% (single) or 24% (married filing jointly). Withheld at 22%. Additional federal tax owed on the RSU portion: 10-15% × $120,000 = $12,000-18,000 at tax filing.
This is why high earners with significant RSU comp often owe taxes at year-end rather than getting refunds. To avoid the surprise: adjust W-4 to request additional withholding, or make quarterly estimated payments, or set aside 25-30% of every RSU vest as "tax reserve" in a separate account.
The RSU refresh cycle (and why year 5 drops hard)
Typical RSU grants vest 25% per year over 4 years. Without an annual refresh grant, your RSU income drops to zero after year 4. Most large tech employers (Meta, Google, Amazon, Apple, Microsoft) grant annual refresh RSUs to keep total compensation flat — but the refresh is usually much smaller than the initial grant.
Real pattern: initial grant $300k over 4 years ($75k/yr vest). Year 2 refresh: $80k over 4 years ($20k/yr vest). Year 3 refresh: $90k over 4 years ($22.5k/yr vest). By year 5, your vest income is roughly: $75k (initial year 4) + $20k + $22.5k + $25k = $142.5k. Year 6, without the initial grant, drops to $67.5k — a $75k decline unless year 6 brings a hefty refresh.
This is the "equity cliff" that makes year 5-6 a common inflection point for job changes at big tech. Plan for it. Negotiate refresh grants aggressively at annual review time.
Cost basis and the 'double-tax' confusion
When RSUs vest, the shares become yours and the FMV at vest is your cost basis. If you sell immediately, there's no further tax (besides small market fluctuations from vest to sale).
If you hold and sell later, the gain from vest price to sale price is taxed as capital gain — short-term (ordinary rates) if held under 1 year, long-term (0-20% federal) if held over 1 year.
Common error: when filing taxes, brokerage 1099-B may show cost basis as zero instead of your vest FMV. This double-counts the RSU income (once at vest, once at sale). You must manually adjust cost basis using the supplemental information from your employer. Missing this adjustment can overpay tax by thousands of dollars.
Whether to sell RSUs immediately or hold
The "sell immediately" school of thought: your RSUs represent concentration risk in the same company that already pays your salary. If the company tanks, you could lose both income and equity value. Selling at vest and diversifying into index funds reduces single-stock risk.
The "hold and defer" school: long-term capital gains on appreciation from vest to sale are taxed at 0-20% federal, lower than ordinary income. If you believe the stock will appreciate, holding for 1+ year saves tax on the gain.
Most fiduciary financial advisors recommend the sell-immediately approach for risk-management reasons, especially if the employer stock is already more than 10-15% of your net worth. For dollar-cost-averaged diversification, Betterment, Schwab Intelligent Portfolios, and Vanguard Personal Advisor Services offer automated rebalancing.
Tax timing of RSU vests
RSUs are taxed in the year they vest, regardless of whether you sell. If 500 RSUs vest on November 15, 2026 at $50/share, you have $25,000 of ordinary income reported on your 2026 W-2. You can't defer this by holding shares — the tax event happened at vest.
You CAN control the timing of additional capital gains: by holding past the 1-year mark, gains from vest-to-sale become long-term. But the ordinary income at vest is fixed.
For concentration-risk reasons, many advisors recommend a "sell 60-70% at vest, hold 30-40% for long-term cap gains" strategy. Sell enough to cover tax + diversify a majority; hold a minority for long-term appreciation if you have conviction.
Disclaimer
This is not tax, legal, or investment advice. RSU taxation is complex and varies by federal bracket, state, employer withholding methodology, and individual cost-basis tracking. For any RSU vest worth more than a few thousand dollars, reconcile the vest price against your cost basis and consult a CPA at tax time. Concentration risk in employer stock is real; diversification decisions should reflect your personal risk tolerance and overall portfolio allocation.