RSUs 101: What You Need to Know About Restricted Stock Units
Hooray, your company granted you a nice RSU package as part of that new job or promotion. What’s this? $$$BOOM$$$ - that’s your unexpected balance due on the return. Let’s talk about the taxes, vesting, and life events of your RSU’s so you understand what’s the full impact!
What Are RSUs (Restricted Stock Units)?
Ok so maybe the above was a little dramatic, but there’s definitely some important and not-often-talked-about considerations with RSU’s. Restricted Stock Units (RSUs) are a form of equity compensation where your employer promises to give you company shares once you meet certain criteria (usually time-based or performance-based).
Think of them as a stock reward on hold. Until they vest, you don’t own them. On vesting day, they become real shares and often come with a taxable event.
How RSUs Are Taxed: Grant → Vest → Sell
1. Grant Date
Not taxable. It’s just when the company promises future shares.
2. Vesting Date (Taxable Event)
As soon as RSUs vest, the Fair Market Value (FMV) of your shares is taxed as ordinary income.
This amount appears on your W‑2 and is subject to federal, state, and payroll taxes (Social Security + Medicare) .
Your company likely uses a sell-to-cover—selling enough of your shares automatically to cover your tax withholding (including federal, FICA, and state - but sometimes there is not enough paid in). We’ll cover this a bit more below, but know that if there is no sell-to-cover, you could be having a bigger payment with the return filing itself (not to mention a larger underpayment penalty).
In short, the taxes owed on the value of the shares received are paid with the return filing/through withholdings since RSU’s are taxable at vest.
3. Sale of Shares (Taxable Event)
After vesting, any later sale of the shares is reported separately:
Within 1 year = short-term capital gains (short term capital gains are taxed as ordinary income/at ordinary income rates)
After 1 year = long-term capital gains (0–20%)
Cost basis: FMV on vesting day. Profit = sale price minus this basis.
Employment income vs capital gains: The vest date (item 2. above) is when the shares are imputed as ordinary income as part of your employment income since you are receiving them for the first time (after all, your employer gave them to you and the IRS would have a fit if you got something of value that wasn’t taxed). However once the shares are yours, any growth of the shares (i.e. the stock you now hold in the company) is now considered a capital gain (what we are talking about here in item 3.).
State & Multi-State Tax: Does Location Matter?
Yes, we can’t forget about states! If you lived or worked in different states during the vesting period, your RSU income is allocated across those states .
Example: If 90% of your vesting timeline occurred in California and 10% in Texas, then 90% of that income is taxable by California—even if you no longer live there.
You may need to file state returns or claim credits to avoid double taxation .
Key RSU Terms (Simple Definitions)
Grant date: When your company promises RSUs
Vesting schedule: Timeline to earn shares (e.g., 25% each year)
Vesting date: When shares are actually yours (taxable event)
Delivery date: Day vested shares hit your brokerage
Fully vested: All RSUs granted have vested (e.g. you received all the shares from a given RSU offering/package/reward)
Sell-to-cover (STC): Company sells enough vested shares to cover your taxes. You'll receive net shares, while some are sold automatically
RSUs on Your Tax Return & W‑2
W‑2: At vest, the FMV of vested RSUs is included in Box 1 and often flagged in Box 14.
If your company used sell-to-cover, you'll get a 1099-B for the shares sold.
Watch out: It often only shows gross proceeds, not your cost basis (your vesting FMV).
Double-check your brokerage's sell-to-cover or transaction statement around the vest date to find your actual cost basis and avoid overstating capital gains.
Common RSU Vesting Structures
Graded vesting: Partial vesting over time (e.g., quarterly or annually)
Cliff vesting: All shares vest after a set period (e.g., after 4 years)
Double-trigger vesting: Combines time + company goals or exit event
What If You Leave Before Vesting?
Most RSU plans state that unvested shares are forfeited if you quit or are fired (unless you have special acceleration clauses).
Make sure to review your RSU agreement carefully.
Sell-to-Cover: Deeper Dive
When your RSUs vest, your company automatically sells enough shares to cover your ordinary income/state/social tax bill.
For example:
You have 100 vested shares at $50/share = $5,000 income.
Company needs $1,250 to withhold (25%).
They sell 25 shares and deliver the remaining 75 to you.
Later, when you get your 1099-B, it will only show proceeds from the sale (25 shares × sale price), not the cost basis.
Make sure to retrieve the sell-to-cover statement from your broker to fill out accurate capital gains on your return.
Why RSUs Impact Your Taxes
They count as ordinary income at vesting, which could stretch you into a higher bracket
Your cost basis = FMV at vesting, not sale price
Working in multiple states adds filing complexity
Losing unvested RSUs is common if you leave early
Sell-to-cover income needs proper basis reporting
What You Should Do Next
If you’ve got RSUs, this is the time to get on top of your tax strategy. You can easily:
Overlook taxable vesting events
Miscalculate capital gains due to incorrect basis
Miss state filings if you moved during vesting
Let’s chat—book a 1:1 Strategy Session with me at Akouson Financial. I’ll help you:
Review your RSU vesting schedule
Set up accurate withholding and estimated payments
Ensure you file the right states and avoid surprises
I know there was a lot of info outlined above, and you may be thinking RSU’s are just a source for payments and penalties on your return, but a little planning together goes a long way to make sure you pay with peace of mind and pay nothing more than you need to!
Disclaimer:
The information provided in this blog is for general educational purposes only and should not be construed as tax, legal, or financial advice. Every individual’s situation is unique, and you should consult a qualified tax professional or financial advisor before making decisions based on this content. Akouson Financial and its representatives are not responsible for any actions taken based on the information provided herein.