How Are RSUs Taxed When Sold? A Guide for California and Washington Families

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

When you sell RSU shares, you pay capital gains tax only on the change in price since the day they vested. The value at vest was already taxed as wages, so that value becomes your cost basis. Sell on the vest date and there is usually little or no extra tax; hold and sell later, and the gain (or loss) is short-term if you held one year or less and long-term if you held more than one year.

For a household earning $750k or more, the bigger tax event is the vest itself, not the sale. That is where most of the money, and most of the surprises, sit. This guide walks through both, with numbers for a California family and the same family in Washington.

The two tax moments: vest and sale

At vest. When shares are delivered, their fair market value is ordinary wage income. It shows up on your W-2 and is taxed exactly like salary: federal income tax, Social Security up to the wage base, Medicare, and in California state income tax and SDI. Your employer withholds by selling or holding back some shares. For 2026 most employers withhold federal tax at the optional 22% flat rate for supplemental wages, and 37% is mandatory on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15).

At sale. Your basis per share is the value that was taxed at vest. Sale price minus that basis is your capital gain or loss. The holding period starts at vest, not at grant. Held more than one year means long-term treatment (IRS Topic 409).

One correction to a claim that still circulates: you cannot file an 83(b) election on RSUs. An RSU is an unfunded promise to deliver shares, not property, until the shares arrive (Treas. Reg. §1.83-3(e)). 83(b) applies to restricted stock and early-exercised options.

Worked example: a $980k household in San Jose

Assumptions: married filing jointly, two children ages 4 and 7. Combined salaries of $680,000, plus 1,000 RSU shares vesting in 2026 at $300 each ($300,000). Both spouses are already past the 2026 Social Security wage base of $184,500. Taxable income after deductions is about $950,000. We use 2026 federal brackets and California’s 2025 schedule, the latest the FTB has published.

Federal withholding at 22% took $66,000. The federal bill on those shares is $108,626. That leaves roughly $42,600 still owed in April, from one vest. Families who have four quarterly vests at this level can find a six-figure balance due and an underpayment penalty on top. The fix is to raise W-4 withholding on salary or make estimated payments during the year. You generally avoid the penalty if your withholding and timely estimated payments cover the smaller of 90% of this year’s tax or 110% of last year’s tax, when last year’s AGI was over $150,000 (Form 2210 instructions).

What happens when they sell

Their basis is $300 a share. Three ways it can play out, at 2026 rates:

1. Sell at vest for $300. Gain is zero. No further tax. The $300,000 is now cash they can move anywhere.
2. Hold 8 months, sell at $360. A $60,000 short-term gain, taxed like wages: 37% federal, 3.8% Net Investment Income Tax and 11.3% California, plus California’s extra 1% on the $10,000 that pushes taxable income past $1,000,000. About $31,360 in tax.
3. Hold 13 months, sell at $360. A $60,000 long-term gain: 20% federal (taxable income above $613,700), 3.8% NIIT, and the same California tax as the short-term sale. About $21,160. Holding saved roughly $10,200, all of it federal.

There is a fourth outcome people skip. If the price falls to $240 and they sell, they have a $60,000 capital loss. It offsets other capital gains, but only $3,000 a year can be used against wage income, with the rest carried forward (IRS Topic 409). They paid about 50% tax on shares worth $300 and now own shares worth $240.

California has no lower rate for long-term gains (FTB). On the slice of taxable income above $1,000,000, it adds the 1% Behavioral Health Services Tax, for a 13.3% top rate. So for a California family, waiting a year to sell buys a federal saving only, while the full position stays exposed to one company’s stock.

The same family in Bellevue, Washington

• At vest: no state income tax in 2026. The WA Cares Fund premium of 0.58% of wages still applies, with no cap, unless you hold an approved exemption. Federal tax and the withholding gap are the same as above.
• At sale: short-term gains are not hit by Washington’s capital gains tax, which applies to long-term gains. Long-term gains above the standard deduction ($278,000 for 2025, the latest published) are taxed at 7%, and 9.9% on taxable gains over $1,000,000 (WA DOR, tiered rates notice). The $60,000 long-term gain in the example is below the 2025 deduction amount, so it would owe no Washington capital gains tax on its own.
• Coming change: Washington enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028 (WA DOR). Details are still pending DOR guidance, so households with large vests may want to keep it in view for 2028 and later.

How to reduce the tax without taking on more risk

You cannot change how the vest is taxed. It is wages. What you can control is the gap, the timing of sales, and which shares you sell.

• Consider selling at vest as the default. This is the cleanest way to diversify without capital gains. Holding vested RSUs is the same economic decision as taking a cash bonus and buying your employer’s stock with it. Most families would not do the second.
• Pick lots on purpose. If you already hold several vests, tell your broker which lots to sell. Selling the highest-basis lots first can reduce the gain, and choosing lots held over a year can lower the rate on it. Specific identification is described in IRS Publication 550.
• Watch for wash sales. Selling at a loss within 30 days before or after a new vest or ESPP purchase can disallow the loss (Publication 550). Time loss sales away from vest dates.
• Give appreciated shares, not cash. If you itemize, long-term shares given to a public charity or donor-advised fund are generally deductible at fair market value, up to 30% of AGI, and the gain is never taxed (IRS Publication 526). From 2026, only gifts above 0.5% of AGI are deductible, and households in the 37% bracket have itemized deductions trimmed so each dollar saves roughly 35 cents of federal tax (P.L. 119-21, sections 70425 and 70111).
• Be careful gifting shares to children. For 2026, a child’s unearned income over $2,700 is taxed at the parents’ rate under the kiddie tax, so moving shares to a UTMA rarely saves tax at this income.
• Fund pre-tax accounts from salary. RSU cash can cover living costs while salary goes to the 401(k) ($24,500 for 2026) and a dependent care FSA ($7,500 per household for 2026, if your plan adopted the new limit).

For how the shares are withheld at vest, see sell to cover vs. same-day sale. For the W-2 side, see do RSUs count as income.

The mistake that costs the most: double-counted basis

Brokers often report RSU sales on Form 1099-B with a cost basis of zero or blank. If you file as shown, you pay tax on the full sale price, even though the vest value was already taxed on your W-2. You correct the basis on Form 8949 (Form 8949 instructions). In the example above, a missed adjustment on a same-day sale would add $300,000 of phantom gain. Our step-by-step on reporting RSUs on your tax return covers the forms.

What to write down for your kids

Most families never decide what their RSU rule is. Shares pile up because selling feels like a decision and holding does not. Write the rule down in a short Decision Memo: “We sell at vest. We keep employer stock under a set share of our net worth. Here is why.” Add what you learned the year the withholding gap hit.

As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” A one-page note in your FamilyKnowledge® Library does that.

Common questions

Can you sell RSUs immediately after they vest?

Usually yes, once the shares are delivered to your brokerage account, which can take a few days. Company trading windows and blackout periods can block sales, especially for employees with access to earnings information. Some set up a Rule 10b5-1 trading plan so sales happen on a schedule. RSUs at a private company generally cannot be sold until a tender offer or IPO.

Am I taxed twice on RSUs?

No, if you report correctly. The vest value is taxed once as wages. At sale, only the change since vest is taxed. Double tax happens when the 1099-B shows a zero basis and nobody adjusts it on Form 8949. Check every RSU sale against your vest confirmations before filing.

Is it better to hold RSUs a year for long-term rates?

Sometimes, but it is a bet. At this income, waiting a year cuts the federal rate on the gain from 37% to 20%, and it does nothing for the rest of the position. In California the state rate does not change. A modest price drop during that year can erase the saving. Decide how much single-stock risk you can accept first, then look at taxes.

Next step

Pull your vest schedule for the next 12 months and your year-to-date withholding. Compare the withholding to your actual bracket and fix any gap before the next vest. If you want a second set of eyes, our tax management and investment risk management teams at Age Five Family Office™ can model it with you.

This is general education, and the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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