RSUs Are Taxed Like a Bonus: A Planning Guide for Vesting Years

Key takeaways

RSUs are taxed as wages at vesting on the full market value; there is no election that changes that.
Employers typically withhold 22% on supplemental wages, which leaves a shortfall for anyone in the 24% bracket or above.
Holding vested shares is a decision to buy your employer's stock at today's price with after-tax money; treat it that way.
Vesting years are the years for bracket management, extra 401(k) and HSA contributions, and charitable gifts of appreciated shares.

Restricted stock units have become the default form of equity pay at public companies, and they're simpler than stock options in almost every way. That simplicity hides a few expensive misunderstandings, mostly about withholding and about what it means to keep the shares. This is how we plan around a vesting schedule.

How RSUs are taxed

An RSU is a promise to deliver a share of stock on a future date, usually spread across a vesting schedule. Nothing is taxed at grant. On each vesting date, the market value of the shares delivered is ordinary income, reported on your W-2 exactly like a cash bonus, subject to income tax, Social Security tax up to the wage base ($184,500 in 2026), and Medicare tax.

That vesting value becomes your cost basis in the shares. Sell immediately and there's essentially no gain or loss. Hold, and any change from the vesting price is a capital gain or loss when you eventually sell: short-term if held less than a year from vesting, long-term after that.

There's no 83(b) election for RSUs in the ordinary case, because nothing has been transferred to you at grant. The tax is what it is. The planning is about everything around it.

The withholding problem

When RSUs vest, most employers withhold shares to cover taxes, and most withhold at the IRS flat rate for supplemental wages: 22% federal (37% only above $1 million of supplemental pay in the year). If your marginal rate is 24%, 32%, or 35%, that 22% is short, and the shortfall piles up across every vesting date in the year.

Say an employee has $150,000 in salary and $100,000 in RSU vesting, single filer, 2026. That puts them in the 32% bracket. The 22% withholding on the RSUs leaves a gap of roughly $10,000, plus state tax if they live outside Florida, and it shows up as a balance due in April, sometimes with an underpayment penalty attached. Nobody enjoys that letter.

The fix is to project the year in advance and then either raise salary withholding with a new W-4, make estimated payments, or set aside cash from the vested shares. We do this at the start of each year for clients with vesting schedules, and we revisit it when the stock moves enough to change the numbers.

The decision to hold is a decision to buy

After vesting, you own shares with a basis equal to that day's price. Keeping them is exactly the same financial decision as taking that cash and buying your employer's stock on the open market. Most people wouldn't do the second thing with a big chunk of their net worth. They do the first without noticing, because the shares arrived instead of being purchased.

The result is concentration. One stock that's also the source of your salary, your health insurance, and your future grants. When the company struggles, all of it suffers at once.

Our default is to sell RSUs at vesting, or shortly after, and put the proceeds into the diversified portfolio. Selling at vesting has no tax cost beyond the ordinary income already owed, because the basis equals the sale price. Holding a modest, deliberate amount can be reasonable if you believe in the company and can afford the risk, but the amount should be chosen, not accumulated. For positions that have already grown large, our guide to unwinding a concentrated position covers the options.

Planning in a vesting year

Vesting years tend to be high-income years, which makes them the years for a specific set of moves.

Max the tax-deferred accounts. The 401(k) deferral limit is $24,500 in 2026 ($32,500 with the catch-up at 50 and over; $35,750 for ages 60 to 63). If your plan allows after-tax contributions, the mega backdoor Roth can shelter far more. An HSA adds $4,400 or $8,750 depending on coverage. A dollar deferred in a 32% year is worth more than the same dollar deferred in a 22% year.

Give appreciated shares, not cash. If you make charitable gifts and hold RSU shares that have risen since vesting and are past the one-year mark, donating the shares deducts the full market value and avoids the gain. A donor-advised fund lets you make the gift in the high-income year and grant it out over time. Starting in 2026, itemized charitable deductions face a 0.5% of AGI floor, so bunching gifts into vesting years is worth more than spreading them out.

Watch the thresholds. Vesting income can push you over the $200,000 (single) or $250,000 (joint) line for the 3.8% net investment income tax, into the additional Medicare tax, and through the Roth IRA phase-out ($153,000 to $168,000 single; $242,000 to $252,000 joint in 2026), which makes the backdoor Roth the route for IRA contributions.

Time discretionary income. If you have any say over when a bonus, a stock sale, or a business payment lands, a heavy vesting year is the year to push it out of.

Double-counting on the tax return

One error we see on self-prepared returns: the vesting income is on the W-2, and the broker's 1099-B reports the sale with a basis of zero or a wrong basis. The taxpayer then reports a large gain on shares that were already taxed as wages. The correct basis is the vesting-date value that was included in wages. Whoever prepares your return needs the vesting statements, and that's one of the things we send them.

Coordinating with cash flow

Because vesting is lumpy, clients with RSUs often have income that arrives in quarterly or annual chunks rather than monthly. So we build the household cash flow plan around the vesting calendar: a target cash reserve, a rule for what fraction of each vest funds spending, savings, and taxes, and a standing plan to sell and diversify the rest. That structure turns an unpredictable pay package into something you can plan a life around, and it's a large part of what equity compensation and cash flow planning means here.

Frequently asked questions

Should I sell RSUs immediately at vesting?

For most people, yes, or at least most of them. There's no tax reason to hold, since the basis equals the vesting price, and there's a strong diversification reason to sell. Company trading windows may dictate timing; a 10b5-1 plan can automate sales for insiders.

Do I pay tax twice on RSUs?

No, but returns are often prepared as if you did. Vesting is taxed as wages once. A later sale is taxed only on the change in value since vesting. Make sure the basis on the 1099-B gets corrected to the vesting value.

Can I defer RSU income?

Not at a public company in the usual case. Some private companies structure RSUs with a liquidity-event condition that delays taxation, and some employers offer deferral elections under Section 409A. Those are specific arrangements, not the default.

What about double-trigger RSUs at a private company?

They aren't taxed until both conditions are met, usually vesting plus an IPO or acquisition. When the second trigger hits, years of vesting can land as income in a single year, so planning for that year ahead of time is essential.

Joseph G. Valerio, CFP®, EAFounder and Lead Advisor at Valerio Wealth Management, a fee-only, fiduciary virtual family office in Miami, Florida. One advisor, credentialed in both financial planning and federal tax. About Joseph

This article is general education, not individualized advice, and it is not tax, legal, or accounting advice. Figures reflect federal law for the year stated and can change. Valerio Wealth Management does not prepare or file tax returns. Speak with a qualified professional about your own situation before acting.