How RSUs are taxed, from grant to sale

Grant: usually nothing happens

At grant you hold a promise conditioned on staying, and sometimes on the company hitting a target. You own no shares and can sell nothing, so ordinarily there is no income to report and nothing withheld.

This is the point people most often confuse with restricted stock awards, which are actual shares subject to forfeiture and can permit an election to be taxed at grant. Units are a different instrument. The grant documents say which one you hold, and that is the only reliable place to find out.

Vest: this is the taxable event

On the vest date the shares are delivered and their fair market value that day is compensation. It arrives on your W-2 alongside salary and is taxed as ordinary income at your normal graduated rates.

Because it is a lump sum paid separately from regular wages, it falls into the category the IRS calls supplemental wages, which permits an employer to withhold federal income tax at a flat 22%. That is the source of the shortfall explained on the withholding gap page: on this sample, $19,800 withheld against $22,860 owed.

Two things are set on the vest date and both matter later.

• Your cost basis becomes the vest-day value. You have already paid ordinary income tax on that amount.
• Your holding period starts. Long-term treatment on a later sale is measured from the vest date, not the grant date.

Supplemental wage withholding: IRS Publication 15 (2026), section 7.

Sale: only the price change is taxed

When you sell, the gain or loss is the sale price minus the vest-day basis. The compensation element was already taxed at vest and is not taxed again.

Selling on the vest day itself therefore produces close to no gain, because the sale price and the basis are nearly the same number. That is just how the math works. It isn't a reason to sell or hold. Whether to keep company stock is a separate question, taken up on the concentration page.

Holding longer than a year after vesting generally moves any gain into long-term capital gain treatment. Holding also leaves you exposed to changes in the share price. That is the tradeoff.

Grant to sale, in one table

In short: most of the tax comes at the vest. The tax at sale is usually small. Many people expect the opposite. That is why a vest with no sale can bring a larger tax bill than expected, while a sale in a year with no vest often costs little.

Questions people ask

Do I pay tax twice on RSUs?

Not if the paperwork is right. The vest value is ordinary income, and a later sale is taxed only on the change in price since that day. The double taxation people do encounter is a reporting error rather than a rule, covered on the cost basis page.

When does my holding period start?

On the vest date, when the shares are delivered, not at grant.

What is my cost basis in vested shares?

The fair market value on the vest date, the same amount already reported as ordinary income on your W-2.

Is the vest taxed at capital gains rates?

No. The vest is compensation and is taxed as ordinary income. Capital gains treatment applies only to the change in value after the vest date.

What happens to unvested units if I leave?

Unvested units are typically forfeited, though the rules vary by plan and sometimes by reason for leaving. Your grant agreement governs this and is worth reading before a departure date is set.