By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
No. RSUs are not taxed twice on the same dollars. The value of your shares on the vest date is taxed once, as wages on your W-2, and that same value becomes your cost basis. When you later sell, only the change in price after vesting is taxed, as a capital gain or loss.
The reason so many people believe they were double taxed is paperwork, not law. The Form 1099-B your broker sends often shows a cost basis of $0, or leaves it blank. If that number goes onto your return unchanged, you really do pay tax twice on the vest value, and at a $900,000 household income in California the mistake can cost tens of thousands of dollars on a single sale.
The two tax events on an RSU, and what each one covers
An RSU is a promise from your employer to deliver shares later. Nothing is taxed when the grant is made. Two separate events follow.
- Vest (delivery of shares). The fair market value of the shares on that day is ordinary income. It is added to Box 1 of your W-2 along with your salary, and it is subject to Social Security (up to the wage base), Medicare and state payroll taxes. For 2026 your employer typically withholds federal income tax at a flat 22%, or 37% on supplemental wages above $1,000,000 in the year.
- Sale. Your cost basis is the value you were already taxed on at vest. Only proceeds above that basis are a gain. Hold the shares for more than one year after vest and the gain is long-term; sell sooner and it is short-term, taxed at ordinary rates.
So the first event taxes the value you received as pay. The second taxes only what happened to the stock afterwards. They cover different dollars. The 83(b) election that some older articles suggest does not apply here: RSUs are not treated as property until shares are delivered (Treas. Reg. §1.83-3(e)), so there is nothing to elect on.
Where double taxation actually happens: the $0 basis on Form 1099-B
The basis a broker reports on Form 1099-B often leaves out the compensation income you already reported on your W-2. The Form 8949 instructions say this directly for compensatory stock options granted after 2013 (the reported basis “won’t reflect any amount you included in income”) and tell you to increase your basis by that amount. RSU statements often show the same gap. When the basis box shows $0 or is blank, tax software and busy preparers often accept it, and the full sale price is taxed as a gain.
The fix is a single line on Form 8949 with code B. If the 1099-B shows the basis was reported to the IRS, you enter that basis as shown and add back the vest value as an adjustment in column (g). If the basis was not reported to the IRS, you enter the correct basis directly. Your broker usually provides a “supplemental” statement with the adjusted basis; your employer’s equity portal shows the vest-date price for each lot.
Three other things make RSUs feel doubly taxed even when they are not:
- Sell-to-cover sales. Shares sold at vest to pay withholding show up on the 1099-B as a sale. Their basis is the vest-date value, which is usually close to the sale price, so the gain is roughly zero. It still needs to be reported correctly, with the right basis.
- The April balance due. 22% federal withholding is far below a 35% or 37% bracket. The bill in April is not a second tax, it is the rest of the first one.
- California treats gains as ordinary income. California has no lower rate for capital gains, so the post-vest gain is taxed at the same state rate as your salary. It is still taxed once.
Worked example: a $900,000 California household with one RSU vest
Assumptions (illustrative, 2026 federal figures, 2025 California brackets because California has not yet published 2026 brackets): a married couple in San Jose filing jointly. Combined salaries of $700,000, and the salaried spouse with RSUs already earns above the 2026 Social Security wage base of $184,500. In 2026, 1,000 RSUs vest at $200, adding $200,000 of wages. Each spouse defers $24,500 to a 401(k), and they take the $32,200 standard deduction.
At vest
| Item | Amount |
|---|---|
| RSU income added to W-2 | $200,000 |
| Federal taxable income before and after the vest | $618,800 to $818,800 |
| Federal income tax on the RSU slice (35% up to $768,700, then 37%) | $71,002 |
| Federal withholding at 22% | $44,000 |
| Federal shortfall due in April | $27,002 |
| Medicare (1.45% plus 0.9% Additional Medicare Tax) | $4,700 |
| California SDI (1.3% for 2026, no wage cap) | $2,600 |
| California income tax on the slice (9.3% and 10.3% brackets, approximate) | about $19,700 |
| Total tax on the vest | about $98,000 (roughly 49%) |
At sale, 18 months later at $260 a share
For simplicity, assume the sale year looks like 2026: the same salaries, another $200,000 vest, and 2026 federal and 2025 California figures. Proceeds are $260,000. Correct basis is $200,000, so the long-term gain is $60,000. Federal tax is 20% (their taxable income is above the 2026 $613,700 threshold) plus the 3.8% Net Investment Income Tax, about $14,280. California adds roughly $6,400 at ordinary rates. Total: about $20,700.
Now the error case. If the 1099-B shows $0 basis and nobody adjusts it, the reported gain is $260,000. The extra $200,000 of phantom gain costs about $47,600 federally (23.8%) and about $23,700 in California (11.3%, plus the 1% Behavioral Health Services Tax on taxable income over $1,000,000). That is roughly $71,000 of tax paid a second time on income already taxed at vest.
The same household in Washington
Move the family to Bellevue and the vest looks different. Washington has no individual income tax in 2026, so there is no state tax on the $200,000 of RSU wages. The WA Cares premium of 0.58% applies to all wages with no cap for covered employees, about $1,160 here. Federal tax is unchanged.
At sale, Washington’s 7% capital gains tax applies to long-term gains above a standard deduction ($278,000 for 2025, the latest published figure; 2026 not yet posted by the Department of Revenue). A $60,000 gain alone falls under it. But a $0 basis error inflates federal long-term gain, and Washington’s tax starts from that figure (RCW 82.87.020), so the mistake can push a family with other gains that year over the threshold. Two more points for high earners: Washington has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028, and families who moved from California while RSUs were vesting may still owe California tax on the part of each vest tied to work performed in California (see FTB Publication 1100).
How to check your return in 15 minutes
- Pull every Form 1099-B for the year, including the supplemental statement from your broker.
- For each RSU lot sold, compare the basis shown with the vest-date value in your equity portal. A $0, blank or suspiciously low basis is the red flag.
- Confirm the sell-to-cover lots show a basis close to their sale price.
- Check that Form 8949 shows code B adjustments where the reported basis was wrong.
- If a past return was filed with the wrong basis, an amended return can claim the refund. Federally you generally have 3 years from filing, or 2 years from paying the tax if later (IRS Topic 308). In California you file an amended Form 540 with Schedule X.
For the mechanics of the vest itself, see withhold to cover vs sell to cover, and for the filing steps, how to report RSUs on your tax return. If you want to value unvested grants first, start with how to calculate RSU value.
The decision that matters more than the tax: hold or sell after vest
Because vest value is already taxed, holding shares after vest is an investment decision, not a tax decision. A useful test: if your employer paid you $200,000 in cash today, would you use it to buy company stock? For many Bay Area and Seattle families, salary, unvested grants and vested shares all depend on one employer. That concentration is the larger risk, and it is where our investment risk work usually starts.
What to document for your kids
Write down, once, how your household handles RSUs: what you sell at vest, what you keep and why, and who checks the 1099-B each spring. A one-page note turns a yearly scramble into a rule your partner, your preparer and one day your children can follow. Conversations fade. Documentation compounds.
Frequently asked questions
Are RSUs included in my W-2?
Yes. The vest-date value of your RSUs is included in Box 1 wages on your W-2, along with the tax withheld on it. It is also counted in Medicare wages and, up to the wage base, Social Security wages. Many employers list the RSU amount separately in Box 14 for information. Because it is already on your W-2, do not report it again as other income.
Can I get back tax I paid twice on RSUs?
Usually, yes. If an earlier return reported the sale with a $0 or understated basis, file Form 1040-X with a corrected Form 8949. The federal deadline is generally 3 years after you filed the original return or 2 years after you paid the tax, whichever is later. California requires a separate amended Form 540 with Schedule X.
Are RSUs taxed as capital gains?
Only the part after vesting. The vest value is ordinary wage income. Any rise or fall in the share price after vest is a capital gain or loss, long-term if you held more than one year. In California both are taxed at ordinary state rates; federally, long-term gains get the lower 0%, 15% or 20% rates.
This is general education, and the right move depends on your family’s full picture. If you would like a second set of eyes on your RSU lots and last year’s return, our Tax & Wealth Assessment is the place to start.
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.
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