RSU Tax Calculator
Understand exactly how much you'll take home after taxes when your Restricted Stock Units (RSUs) vest and when you sell them.
Typically, brokerages auto-withhold 22% for federal taxes on RSUs.
Leave equal to vest price if selling immediately upon vesting.
The Ultimate RSU Tax Calculator: Understand Your Stock Compensation
Restricted Stock Units (RSUs) have become one of the most popular forms of equity compensation, especially in the tech industry. They represent a promise from your employer to give you shares of the company's stock on a specific future date, known as the vesting date. However, understanding how much cash you will actually take home after the IRS takes its cut can be incredibly confusing. Our free RSU Tax Calculator demystifies the math, helping you plan your financial future accurately.
What are Restricted Stock Units (RSUs)?
Unlike stock options, where you have the "option" to buy shares at a set strike price, RSUs are actual shares granted to you. They have intrinsic value the moment they vest. When you receive an RSU grant, you don't actually own anything yet. You must satisfy a vesting schedule (usually requiring you to stay with the company for a certain period) before the shares are delivered to your brokerage account.
How are RSUs Taxed at Vesting?
The most common mistake employees make is misunderstanding the initial tax event. RSUs are taxed as ordinary income the moment they vest.
If 100 shares vest and the stock price on that day is $50, your employer reports $5,000 of ordinary W-2 income to the IRS. Because this is treated as supplemental income, employers typically withhold a flat 22% for federal taxes (plus state and payroll taxes). Depending on your overall tax bracket, this 22% withholding may not be enough, and you could owe more at tax time.
The "Sell-to-Cover" Mechanism
You might wonder, "How do I pay taxes on stock I just received if I don't have the cash?" Most companies utilize a Sell-to-Cover method. When your shares vest, your brokerage automatically sells a portion of those shares immediately to cover the tax withholding. If you vest 100 shares, you might only see 65 shares deposited into your account. The other 35 were sold to pay your income taxes.
How are RSUs Taxed at Sale?
The second tax event occurs when you decide to sell the shares you kept. This falls under Capital Gains tax rules. Your "Cost Basis" for these shares is the Fair Market Value (FMV) on the day they vested.
- Short-Term Capital Gains: If you sell the shares less than one year after the vesting date, any profit is taxed at your ordinary income tax rate.
- Long-Term Capital Gains: If you hold the shares for more than one year after vesting, the profit is taxed at the much lower long-term capital gains rate (usually 15% or 20%).
- Selling Immediately: If you sell your RSUs the exact same day they vest, the sale price equals your cost basis. Therefore, your capital gain is $0, and you owe no additional taxes beyond the initial ordinary income tax.
Common Mistakes with RSU Taxes
- Double Taxation Error: When you file your taxes, your W-2 already includes the income from your vested RSUs. When you import your 1099-B (brokerage statement) for the sale of those shares, the cost basis is sometimes reported as $0 instead of the vesting price. If you don't manually adjust your cost basis in your tax software, you will pay taxes on the same money twice!
- Holding Too Long (Concentration Risk): Many employees hold their RSUs indefinitely, hoping the stock goes up to get long-term capital gains rates. However, this ties your salary and your investment portfolio to a single company. Financial advisors often recommend selling RSUs immediately upon vesting to diversify investments, as there is no tax penalty for doing so (the gain is $0).
Frequently Asked Questions
Are RSUs taxed when they are granted? No. Receiving an RSU grant letter is not a taxable event. The tax event only triggers when the shares vest and become yours.
What happens if the stock price drops after it vests? If your stock vested at $50 and you hold it, but it drops to $30 before you sell, you have a capital loss of $20 per share. You still owed the ordinary income tax on the $50 value. You can use that $20 per share capital loss to offset other capital gains, or deduct up to $3,000 per year against your ordinary income.
Use our RSU net payout calculator above to run different scenarios. By adjusting the sale price and tax brackets, you can make informed decisions about whether to hold or sell your company stock.