By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
Restricted stock units (RSUs) are a promise from your employer to give you company shares once you meet a vesting condition, usually staying employed for a set period. You pay nothing for them and there is nothing to exercise. On the day the shares are delivered, their full market value is taxed as wages, appears on your W-2, and becomes your cost basis; from then on, the shares are ordinary stock you can keep or sell.
For a two-income household earning $750,000 or more in California or Washington, that simple mechanic drives three real decisions: how much extra tax to set aside beyond what your employer withholds, how much company stock to keep after each vest, and who in the family understands the plan if you are not around to run it.
How RSUs work, from grant to sale
- Grant. Your employer awards a number of units, often as part of a new-hire or annual refresh package. Nothing is taxed at grant, because you do not own anything yet.
- Vesting. Units vest on a schedule set in your grant agreement, commonly quarterly or annually over three to four years, sometimes with a one-year cliff. Some plans are back-loaded, so read your own schedule rather than assuming equal slices.
- Delivery (release). Vested units convert into real shares in your brokerage account. This is the taxable moment. Usually it is the vest date or within a few days; if your plan delays release, see our guide to RSUs that are vested but not released.
- Withholding. Your employer withholds taxes, typically by keeping back some shares (sell-to-cover or net share settlement).
- Holding or selling. The remaining shares are yours. Any later gain or loss is measured from the value on the delivery date.
Two common misunderstandings come up in the search terms that lead people here. First, you do not “exercise” RSUs. Exercising applies to stock options, which have a purchase price; RSUs have no strike price. Second, an 83(b) election is not available for RSUs. Treasury regulations treat an unfunded promise to deliver shares as not yet property, so RSUs are simply taxed at delivery (Treas. Reg. §1.83-3(e)).
Do RSUs show up on your W-2?
Yes. The value of shares delivered during the year is supplemental wages, so it is included in Box 1 (federal wages) and Box 5 (Medicare wages) of your W-2, and in Box 3 up to the Social Security wage base of $184,500 for 2026 (IRS Publication 15). Many employers also list the RSU amount separately in Box 14, but that is optional and the label varies.
The trap is the sale. Your broker’s Form 1099-B often reports a cost basis of zero or leaves it blank for RSU shares. If you file it that way, you pay tax on the same income twice. The fix is to report the correct basis (the value at delivery) and the adjustment on Form 8949 (IRS Form 8949 instructions). Our walkthrough on how to report RSUs on your tax return covers the line-by-line steps.
Do RSU holders receive dividends?
Not on unvested units. You are not a shareholder until the shares are delivered, so you have no dividends and no voting rights before then. Some plans credit “dividend equivalents” on unvested units, paid in cash or as extra units when the underlying units vest. Because you do not own the shares yet, these are not dividends on stock you hold; they are paid by your employer under the plan and are generally treated as compensation, not as qualified dividends. Whether you get them, and when, is set by your plan document. Once shares are delivered and you keep them, you receive regular dividends like any other shareholder.
Why withholding falls short at your income level
For 2026, employers may withhold federal income tax on RSU income at a flat 22%, and must withhold 37% on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15). For a married couple filing jointly, the 35% bracket starts at $512,450 of taxable income and the 37% bracket at $768,700 for 2026 (IRS Rev. Proc. 2025-32). Most households in the $750,000 to $3 million range have RSU income taxed at 35% or 37%, so 22% withholding leaves a gap of 13 to 15 cents on every dollar of RSU income below the $1 million supplemental mark. That gap shows up as a balance due in April, and possibly an underpayment penalty.
Worked example: a $300,000 vest for a $900,000 household
Assumptions (illustrative, not advice): married filing jointly, two children under 12, $600,000 of taxable income from salaries before any RSUs, $300,000 of RSU shares delivered during 2026, all supplemental withholding at the 22% flat rate, salary already above the Social Security wage base. Both state calculations use the same $600,000 starting point for simplicity.
| Tax on the $300,000 of RSU income | California family | Washington family |
|---|---|---|
| Federal income tax (35% on $168,700, 37% on $131,300, 2026 brackets) | $107,626 | $107,626 |
| Medicare 1.45% plus Additional Medicare Tax 0.9% | $7,050 | $7,050 |
| State income tax (CA 2025 brackets: 9.3%, 10.3%, 11.3% portions) | $29,555 | $0 |
| CA SDI 1.3% (2026) or WA Cares 0.58% (if not exempt) | $3,900 | $1,740 |
| Total tax on the vest | $148,131 (about 49%) | $116,416 (about 39%) |
| Federal income tax withheld at 22% | $66,000 | $66,000 |
| Federal shortfall to plan for | $41,626 | $41,626 |
How the numbers are built. Federal: taxable income rises from $600,000 to $900,000; the first $168,700 of RSU income fills the 35% bracket up to $768,700 and the remaining $131,300 is taxed at 37%. Additional Medicare Tax applies because joint wages exceed $250,000 (IRS). California: the FTB has not yet published 2026 brackets, so the 2025 joint brackets are used: 9.3% up to $742,958, 10.3% up to $891,542 and 11.3% above (FTB 2025 rate schedules). SDI is 1.3% of all wages with no cap for 2026 (EDD). Washington: no tax on wages in 2026 (WA DOR), but the WA Cares premium of 0.58% applies to all wages with no cap, unless the employee holds an approved exemption (WA Cares Fund). State withholding in California can also run short; compare it with the estimate rather than assuming it is right.
The practical answer is to set aside the shortfall on each vest (a separate account works), or raise W-4 withholding on salary, or make estimated payments. Our comparison of withhold-to-cover and sell-to-cover explains how the shares are used to pay the withheld part.
What happens when you sell vested shares
Your cost basis is the value on the delivery date, so selling right away usually produces little or no gain. If you hold, the gain or loss from that basis is capital gain: short-term if held one year or less, long-term if held more than one year (IRS Topic 409).
- Federal: for 2026, long-term gains are taxed at 15% up to $613,700 of joint taxable income and 20% above, plus the 3.8% Net Investment Income Tax once modified AGI exceeds $250,000 (IRS). Short-term gains are taxed at your ordinary rate, 35% or 37% for most of these households.
- California: no lower rate for long-term gains; all gains are taxed as ordinary income (FTB). Holding for a year saves federal tax but nothing at the state level.
- Washington: a 7% tax on long-term capital gains above the standard deduction ($278,000 for 2025, the latest published figure), rising to 9.9% on taxable gains over $1,000,000 (WA DOR). Washington has also enacted a 9.9% income tax on AGI over $1,000,000 starting in 2028, which high earners should factor into longer-range plans (WA DOR).
The real decision: how much company stock to keep
A useful test: if your employer paid this vest in cash, would you use $300,000 to buy its stock today? Holding RSU shares after delivery is exactly that choice. For families whose salary, bonus, unvested grants and vested shares all depend on one company, a downturn can hit income and savings at the same time.
Many families set a written rule instead of deciding at each vest. Examples (illustrative): sell everything at delivery and reinvest in a diversified portfolio; or keep company stock below a fixed share of liquid net worth, such as 10%, and sell the excess each quarter. If you are holding shares with gains, the order of sales and the timing around year-end can change the tax, which is where a written plan helps most. See our investment risk management and tax management services for how we handle this with families.
Common mistakes with RSUs
- Treating the 22% withholding as the final tax.
- Filing the 1099-B with a zero basis and paying tax twice.
- Holding shares for a year to get a “lower rate” in California, where there is no lower state rate.
- Counting unvested units as wealth when deciding on a home purchase or a 529 funding plan.
- Letting company stock grow past a third of the family’s net worth simply because nobody decided to sell.
What to write down for your kids
Your children will not see your vest schedule, but they will one day inherit the results of decisions like these. A one-page note works: what your rule is for vested shares, why you chose it, and what you would do if the stock fell by half. That record lets a spouse, a trustee or, years later, your kids follow your reasoning instead of guessing. 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 and the FamilyKnowledge® System are built around keeping that kind of record.
Frequently asked questions
Are RSUs taxed twice?
No, if you report them correctly. RSU income is taxed once as wages when shares are delivered, and that value becomes your cost basis. When you sell, only the change in value since delivery is taxed. Double taxation happens when a 1099-B shows a zero basis and the return is filed without the Form 8949 adjustment, so the original wage income is taxed again as a gain.
What happens to unvested RSUs if I leave my job?
Under most plans, unvested units are forfeited on the day employment ends, and vested, delivered shares stay yours. Some plans accelerate vesting on retirement, disability, death or a change of control. The answer is in your grant agreement and plan document, so read those before you resign or accept an offer, and ask the new employer whether it will make up the forfeited value.
Next step
Before your next vest, pull your year-to-date pay stub and grant schedule, estimate the shortfall the way the table above does, and write your hold-or-sell rule on one page. If you would like a second set of eyes, the Tax & Wealth Assessment from the Age Five Family Office™ at Bright Advisers reviews RSU tax, concentration and the plan for your kids together.
This is general education, and 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.
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