RSUs: The One Tax Fact That Changes How You Think About Them

If your company gives you Restricted Stock Units, there’s one thing you need to understand above everything else: when they vest, the full value of those shares is taxable income to you that year. Full stop. If you take one thing from this article, let it be that.

Why Companies Use RSUs

Companies that are already publicly traded will often grant RSUs to employees as a way to keep them around while the stock vests over a number of years. The stock goes up, your unvested shares become more valuable, and you’re motivated to stick around and help grow the business. Pretty straightforward incentive.

The tax treatment, though, is where people get tripped up.

A Simple Example

Let’s use round numbers. Company X grants you 2,400 shares of stock via an RSU award on June 1, 2026. The shares vest over three years, with 800 shares vesting at the end of each year. On the grant date, the stock is trading at $100 per share.

At grant: nothing happens. You don’t owe any tax because you don’t actually own the stock yet. If you quit tomorrow, those shares don’t come with you. The IRS only cares about shares you’ve actually received.

One year later, June 1, 2027: Your first 800 shares vest. The stock price has climbed to $125, which is great. The stock is up 25%, and you now own 800 shares worth $100,000.

Now it gets important. That $100,000 shows up as ordinary income on your 2027 W-2, right alongside your salary. You owe income tax on it. Federal, state, FICA, all of it. Your employer will probably withhold some taxes at vesting, either by holding back a portion of the shares (this is called sell-to-cover) or through some other arrangement. The catch is that withholding is often done at a flat 22% federal rate, and if you’re in a higher bracket than that, you’ll owe the difference when you file.

The Question Worth Asking

So you’ve got 800 shares of Company X at $125 each. You’ve already been taxed on that $100,000. Now what?

Most people just hold. It’s their company. They believe in the business. Selling feels disloyal, or maybe they just don’t think about it. But ask yourself this: if someone handed you $100,000 in cash right now, would you turn around and buy 800 shares of this one stock with it?

Because that’s the decision you’re making. From a tax standpoint, the slate is clean the moment those shares vest.

There’s No Tax Difference Between Holding and Selling at Vest

This is the part that trips people up the most. You’ve already been taxed on the full fair market value at vesting. Your cost basis in those shares is $125, the price on the day they vested. So if you sell the stock right away at $125, there’s no gain, no loss. You received $100,000 in income (already taxed), and you converted it to cash.

Now, if you hold and the stock climbs to $150, you’d owe capital gains tax on that $25 per share of appreciation above your $125 basis whenever you sell. Hold for more than a year after vesting, and you qualify for the lower long-term capital gains rate. On the flip side, if the stock falls to $100, you’d have a $25-per-share capital loss you could use to offset gains elsewhere.

But right at the moment of vesting? There’s no extra tax for selling and no tax benefit to holding. The income tax already happened.

So What Do You Do?

Once you realize that holding vested RSUs is just choosing to invest that money in your company’s stock, it changes the way you look at it. Think about how much of your financial life is already tied to this company. Your salary comes from them. Your career is there. You’ve still got 1,600 shares left to vest. Piling a big stock position on top of all that is a lot riding on one outcome.

That doesn’t mean selling is automatically the right move. You might have strong conviction in the company’s direction, or the stock might be a small enough piece of your total portfolio that the concentration doesn’t bother you. Those are personal decisions.

But the tax question shouldn’t be what’s holding you back. There’s no tax penalty for selling at vest and moving that money into a broader mix of investments. The tax bill is the same whether you sell or hold.

The Takeaway

RSUs are taxed as ordinary income when they vest. Not when they’re granted, and not when you sell. Once vesting happens, your cost basis resets to the market value on that date, and from that point forward, you’re just holding a stock position you chose to keep. Selling at vest and putting that money to work in a diversified portfolio doesn’t cost you anything in extra taxes. Understanding that should make the hold-or-sell decision a lot easier.

This article is for educational purposes only and does not constitute personalized financial, tax, or investment advice. Willcox Wealth Management is a registered investment adviser. Please consult with a qualified professional before making financial decisions based on the information presented here.