By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
Once they vest, RSUs and cash are taxed the same way: the value of the shares on the vest date is ordinary wage income, reported on your W-2, just like a cash bonus. The real difference is risk. Cash is a fixed amount you get to keep, while an RSU is worth whatever the stock trades at on vest day, and you usually lose unvested units if you leave. So “RSU vs cash” really comes down to two questions: how much of your pay you want tied to one stock, and whether you would buy that stock with cash you already have.
For a two-income household earning $750,000 to $3 million in California or Washington, RSUs can be a large share of total pay (a quarter of it in the example below). That makes this less a question about a benefit and more a question about how much of the family’s net worth sits in one company.
Why a vested RSU is the same as a cash bonus for tax purposes
An RSU is a promise to deliver shares later. Until the shares arrive, there is nothing to tax, and you cannot file an 83(b) election on RSUs, because the IRS does not treat an unfunded promise as property (Treas. Reg. §1.83-3(e)). When the shares are delivered at vest, their fair market value is taxed as wages (IRS Publication 525). That value then becomes your cost basis in the shares.
Put simply, vesting works like your employer paying you a cash bonus and you using all of it to buy company stock on the same day. The tax bill is identical either way. You never pay anything to receive RSUs, which is the main difference from stock options (you pay an exercise price) and an ESPP (you buy shares at a discount through payroll, capped at $25,000 of stock per calendar year measured at grant-date value under IRC §423(b)(8)).
Two variations come up often. Cash-settled RSUs pay out the cash value of the shares at vest instead of the shares themselves. They are taxed as wages in the same way, and there are no shares to hold or sell afterward. PSUs (performance share units) are RSUs where the number of shares that vest depends on company targets such as revenue or total shareholder return. The final count can come in above or below the target, and the plan document defines the range.
Worked example: a $100,000 vest in California and in Washington
Assumptions (illustrative): a married couple filing jointly with $1.2 million of W-2 income for 2026. One spouse is a biotech director with a $500,000 salary and $300,000 of annual RSU vests. The other is a physician earning $400,000. Both put $24,500 into their 401(k) plans, the 2026 elective deferral limit (IRS Notice 2025-67). Federal taxable income is about $1,118,800 after the 2026 standard deduction of $32,200 (Rev. Proc. 2025-32). The director’s salary is already above the 2026 Social Security wage base of $184,500 (IRS Publication 15), so a vest adds no Social Security tax.
| Tax on the next $100,000 of RSU income | California household | Washington household |
|---|---|---|
| Federal income tax (37% bracket, over $768,700 MFJ for 2026) | $37,000 | $37,000 |
| Medicare 1.45% + Additional Medicare 0.9% | $2,350 | $2,350 |
| State income tax (CA 11.3% bracket + 1% Behavioral Health Services Tax, 2025 schedule) | $12,300 | $0 in 2026 |
| CA SDI 1.3% (2026) or WA Cares 0.58% | $1,300 | $580 |
| Total tax | $52,950 | $39,930 |
| Kept | $47,050 | $60,070 |
A $100,000 cash bonus would produce exactly the same numbers. Assuming no unusually large itemized deductions, the couple’s California taxable income is also above $1,000,000, so the next $100,000 falls in the 11.3% bracket ($891,542 to $1,485,906 for joint filers on the 2025 schedule). The 0.9% Additional Medicare Tax applies because joint wages exceed $250,000 (IRS), and the WA Cares premium of 0.58% applies to all wages with no cap (WA Cares Fund). California has no wage cap on SDI (EDD), and the 1% Behavioral Health Services Tax applies to taxable income over $1,000,000 (FTB 2025 rate schedules; the FTB has not yet published its 2026 schedules). Washington has no wage income tax in 2026, but a 9.9% tax on AGI over $1,000,000 takes effect January 1, 2028 (WA DOR), so a household at this income should not assume RSU income stays state-tax-free.
The withholding gap
Employers usually withhold federal tax on RSU income at the 22% flat supplemental rate, and at 37% only on supplemental wages above $1,000,000 in a calendar year (Pub 15, 2026). At a 37% marginal rate, that leaves about $15,000 of federal tax unpaid on every $100,000 that vests. On $300,000 of vests, the April bill can be around $45,000 before any state shortfall. This is the most common surprise we see with RSU income. Our guides on withhold to cover vs sell to cover and how RSUs count as income show how to size estimated payments.
Are RSUs worth it compared with a cash offer?
When a new job or a promotion offers a choice between more base pay and a larger RSU grant, the two are not equal even when the headline numbers match. Here is a hypothetical $400,000 grant vesting evenly over four years, compared with $100,000 a year of extra salary.
| Stock price over the vesting period | RSU grant value per year | Extra cash per year |
|---|---|---|
| Falls 30% | $70,000 | $100,000 |
| Flat | $100,000 | $100,000 |
| Rises 30% | $130,000 | $100,000 |
| You leave after two years | Half the grant is forfeited | Paid through your last day |
RSUs are worth more than cash only if the stock rises and you stay through vesting. They make sense when you believe in the company, expect to stay for the full schedule, and your family already holds enough safe assets (emergency reserves, retirement savings, the 529s) that a 30% drop would not change any plans. Cash wins when you might change jobs, when you already hold a large position in the same stock, or when both spouses work in the same sector. A Genentech scientist married to a Gilead manager is, in practice, one concentrated biotech bet. To value a grant before you accept it, see how to calculate RSU value.
The hold-or-sell decision at each vest
Since vested shares are taxed like cash, a simple test works well: if your employer paid this vest in cash, would you use all of it to buy company stock today? If the answer is no, holding the shares is the same as making that purchase.
Selling at vest is also the cleanest way to diversify without a big capital gains bill. Your basis equals the value already taxed as wages, so shares sold at or near the vest price produce little or no gain. Tax only becomes a reason to hold after the shares have gone up, and at that point:
- In California, there is no lower rate for capital gains (FTB). Waiting a year lowers only the federal rate, from ordinary rates (37% at this income) to 20% for joint taxable income above $613,700 in 2026. The 3.8% Net Investment Income Tax applies to the gain either way, short-term or long-term (IRS).
- In Washington, long-term gains on stock can owe the state capital gains tax of 7%, rising to 9.9% on taxable gains above $1,000,000 (WA DOR), after the annual standard deduction.
Many families write down a standing rule, such as “sell every vest unless employer stock is under 10% of our net worth,” so the decision does not depend on how the stock did last quarter. The 10% is an example, not a recommendation. The right cap depends on your other assets and how secure both jobs are. Our guide to selling ESPP or RSU shares first covers the order of sales when you hold both.
Common mistakes with RSUs vs cash
- Treating unvested RSUs as money you have. Grants you have not vested are not in your net worth for planning a home purchase or a sabbatical.
- Relying on 22% withholding. At the 35% and 37% brackets, it usually leaves a balance due.
- Holding for tax reasons that don’t exist. At vest there is little or no gain to defer. Holding is an investment decision, not a tax one.
- Counting the shares twice. Employer stock in a brokerage account plus unvested grants plus an ESPP plus your salary can add up to more exposure to one company than any adviser would recommend on purpose.
What to document for your kids
Children in a household like this watch shares arrive every quarter and a large tax payment go out every April, without seeing the reasoning behind either. Write down your vest rule, your cap on employer stock, and why you picked them. It takes one page. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” Our family governance work is built around capturing decisions like this one.
FAQ
Are RSUs taxable when they vest or when I sell?
Both, for different amounts. The value of the shares on the vest date is taxed as wages in the year they are delivered. When you later sell, only the change in price since vest is a capital gain or loss. If you sell right at vest, there is little or no second tax event. Your broker’s 1099-B may show a basis of zero, so check it against your W-2.
Do you have to buy RSUs?
No. RSUs have no purchase or exercise price. The company delivers the shares at vest, usually keeping or selling some of them to cover withholding. That is different from stock options, where you pay a strike price, and from an ESPP, where you buy shares through payroll deductions.
Is an RSU better than a cash bonus if the stock is doing well?
Past performance does not change the tax, which is the same either way. The real question is whether you want more money in that one stock. If your employer shares already make up a large part of your net worth, a cash bonus, or selling at vest, gives you the same after-tax dollars with less concentration.
Next step
Add up three numbers: vested employer shares you hold, unvested grants, and this year’s expected vests. Compare the total with your net worth and with the federal and state tax you have actually withheld. If either gap is larger than you expected, our tax management and investment risk management teams can go through it with you in a Tax & Wealth Assessment.
This is general education, not individual tax advice. The right move depends on your family’s full picture.
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.
Connect on LinkedIn → · About KevinThis is part of how we approach Tax Management for high-income W-2 families at Bright Advisers.
Keep reading