Frequently Asked Questions
How are RSUs taxed at vest?
When RSUs vest, the fair-market value × number of shares is treated as ORDINARY INCOME - reported on your W-2 and subject to federal supplemental withholding (22% standard, 37% on bonuses + RSUs over $1M YTD), state withholding, FICA (6.2% up to wage base + 1.45% Medicare + 0.9% additional on $200K+). Companies typically "sell to cover" - auto-sell ~30-40% of vested shares to fund the tax bill, depositing the net to your brokerage.
Why do high earners owe more tax at year-end despite withholding?
The 22% supplemental withholding rate is a flat rate the IRS sets, NOT your actual marginal bracket. If you're in the 32% federal bracket, the company under-withholds by 10% of your RSU value. On $300K of RSUs vested, that's $30,000 owed at tax time. Add state tax (no withholding gap in many states but flat 22% can also under-withhold). High-RSU employees should plan for this with quarterly estimated tax payments or W-4 adjustments.
Should I hold or sell RSUs at vest?
Default to sell. RSUs at vest are equivalent to receiving a cash bonus AND immediately investing it 100% in a single stock - concentrated single-stock risk most financial advisors counsel against. Selling immediately captures the value, diversifies, and any subsequent gain on held shares is just incremental investment decision - separate from the comp question. Counter-argument: long-term capital gains treatment if held 1+ year, but typically not worth the concentration risk.
What is the cost basis of RSU shares?
The fair-market value on the vesting date - the same value taxed as ordinary income. Selling at vest = $0 gain (or tiny intraday move). Selling LATER at a different price creates capital gain/loss against this basis. Critical: brokerages sometimes report $0 basis on 1099-B, which would double-tax you. Always verify cost basis when filing - use vesting confirmation from your equity platform.
Do RSUs expire like stock options?
No. Once your RSUs vest, the shares are yours with no expiration date. Unlike stock options, there is nothing to exercise and no risk of them expiring worthless.
When does the 37% rate apply instead of 22%?
The 37% supplemental rate kicks in on the portion of a vest that pushes your total bonuses and supplemental compensation for the year above $1,000,000. For example, if you have already received $900,000 in prior bonuses and your vest is worth $200,000, the first $100,000 is withheld at 22% and the remaining $100,000 at 37%.
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