What Does It Mean When Shares Vest? Vesting Schedules and Tax at Vest

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

When shares vest, you earn the right to keep them. Before vesting, the shares in your equity grant are a promise you lose if you leave; after vesting, they are yours (or, for stock options, you gain the right to buy them). What vesting means for your taxes depends on the type of grant: RSUs and restricted stock are generally taxed as wages the day they vest, while stock options are usually not taxed until you exercise them.

For a dual-income household in California or Washington earning $750,000 or more, vesting is not a once-a-year event. A typical tech, biotech or pharma package vests every quarter or every month, and each vest date adds income, withholding and a decision about whether to keep the shares. This guide explains how vesting schedules work, how each grant type is taxed at vest, and what one vest looks like in dollars for a family at this income.

How a stock vesting schedule works

A vesting schedule sets out when, and under what conditions, granted equity becomes yours. Three terms cover most offer letters:

• Four-year vesting schedule. The most common structure for new-hire grants. The grant is spread over four years of service.
• Cliff vesting. Nothing vests until a set date, then a block vests at once. A one-year cliff on a four-year grant means 25% vests on your first anniversary. If you leave at month 11, you typically walk away with nothing from that grant.
• Graded (or ratable) vesting. After the cliff, the rest vests in equal slices, usually monthly or quarterly. Some employers front-load or back-load the slices instead, so read the grant agreement rather than assuming 25% a year.

Two other conditions show up at this income level. Performance vesting ties some or all of a grant to company or individual targets, so the number of shares that vest can be higher or lower than the target grant. Double-trigger vesting, common at private companies, requires both time served and a liquidity event (an IPO or acquisition) before shares are delivered and taxed. We cover that case in RSUs at private companies.

Unvested equity usually disappears when you leave. That matters when you weigh a job offer, a sabbatical or a move between employers: the unvested balance is part of your pay you have not yet earned, not money you already have.

What vesting means for each type of equity

“Equity vests” means different things depending on what you were granted. The table below sets out the key difference for each.

A few rules behind the table:

• RSUs cannot use an 83(b) election. An RSU is an unfunded promise to deliver shares, which is not “property” under tax law until the shares are delivered (Treas. Reg. §1.83-3(e)). The value of the shares on the delivery date is ordinary wage income on your W-2.
• Restricted stock can. If you receive actual shares subject to vesting (common at early-stage companies, or with early-exercised options), you can elect to be taxed on their value when you receive them (at grant or early exercise) instead of at vest. The written election must be filed with the IRS no later than 30 days after the shares are transferred to you (IRS Publication 525). See how to draft an 83(b) election.
• Options that vest are not income yet. Vesting only lets you exercise. For NSOs, the spread between market price and strike price at exercise is taxed as wages. For ISOs, there is no regular income tax at exercise, but the spread can count toward the alternative minimum tax. ISOs that first become exercisable in one calendar year above $100,000 of stock (valued at grant-date fair market value) are treated as NSOs for the excess (IRC §422(d)). Exercise mechanics are covered in tax on a cashless exercise.

How RSUs are taxed when they vest in California and Washington

RSU income at vest is treated like a bonus. For 2026, employers may withhold federal income tax at a flat 22% on supplemental wages, and must withhold 37% on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15, 2026). Withholding is a prepayment, not the tax owed. A married couple filing jointly with 2026 taxable income above $768,700 is in the 37% federal bracket (Rev. Proc. 2025-32), so 22% withholding usually leaves a balance due in April.

Payroll taxes apply too. Social Security (6.2%) stops once your wages for the year pass the 2026 wage base of $184,500. Medicare (1.45%) has no cap, and the 0.9% Additional Medicare Tax applies to a married couple’s combined wages above $250,000 (IRS).

The state layer is where California and Washington families diverge:

• California taxes RSU income as ordinary wages. For 2025 (the latest published schedule), the joint-filer rate is 10.3% on taxable income from $742,958 to $891,542, 11.3% up to $1,485,906 and 12.3% above that, plus the 1% Behavioral Health Services Tax on taxable income over $1,000,000 (FTB 2025 rate schedules). State disability insurance (SDI) takes 1.3% of all wages in 2026, with no wage cap (EDD).
• Washington has no individual income tax in 2026 (WA DOR), so RSU income at vest faces federal tax only, plus the WA Cares Fund premium of 0.58% of wages with no cap, unless the employee has an approved exemption (WA Cares Fund). That changes from January 1, 2028, when a 9.9% tax on AGI over $1,000,000 takes effect. Families planning multi-year vesting should factor that in now.

Worked example: one cliff vest for a $900,000 household

Assumptions (illustrative, married filing jointly, 2026): one spouse joins a public company with a $400,000 RSU grant on a four-year schedule with a one-year cliff. The share price is unchanged at the cliff. Household W-2 income for the year, including the vest, is $900,000. The vesting spouse’s salary already exceeds the Social Security wage base, and after deductions the family’s taxable income is about $868,000, so the whole vest is treated as taxed at the 37% federal rate (2026 bracket starts at $768,700) and California’s 10.3% rate (band $742,958 to $891,542, 2025 rates used as the latest published). This is a simplification: if part of the vest fell in a lower band, the tax would be slightly lower.

At the one-year cliff, 25% of the grant vests: $100,000 of shares, reported as wages.

Two points stand out. First, the family keeps roughly half of the vest in California and about 60% in Washington, not the 78% the 22% withholding line might suggest. Second, the same 15-percentage-point federal gap (37% owed versus 22% withheld) applies to every later vest. With quarterly vests of $25,000 for the next three years, the gap is about $3,750 a quarter before any raise or refresh grant. Adjusting W-4 withholding or making estimated payments can close it; ignoring it can mean a large April bill and possible underpayment penalties. For the share-withholding mechanics, see sell to cover versus same-day sale.

What happens to vested shares after delivery

Once RSU shares are delivered, your cost basis is their market value on the vest date (the amount already taxed as wages). From then on they are ordinary stock. Selling right away usually creates little or no further gain. Holding them means any rise or fall is a capital gain or loss: short-term if sold within a year of vest, long-term after that.

The long-term rate matters less in California than people expect. California has no lower rate for capital gains and taxes them as ordinary income (FTB). Federally, joint filers pay 20% on long-term gains above $613,700 of taxable income for 2026, plus the 3.8% Net Investment Income Tax above $250,000 of modified AGI (IRS). In Washington, the state capital gains tax is 7% on long-term gains above the annual standard deduction ($278,000 for 2025, the latest published) and 9.9% on taxable gains above $1,000,000 (WA DOR).

To estimate what a future vest is worth after tax, use how to calculate RSU value.

The decision each vest date creates

A useful test: if your employer paid this vest in cash, would you use the cash to buy your employer’s stock? If not, holding the shares is the same bet. Families at this income often end up with a large share of their net worth in one company, on top of a salary and future grants from that same company. Questions worth answering once, in writing, rather than on every vest date:

1. What share of our liquid net worth are we willing to hold in employer stock?
2. Do we sell at vest by default, and if not, what would make us sell?
3. How do we cover the gap between 22% withholding and our real rate?
4. Where do sale proceeds go: 529s, the down payment fund, the taxable portfolio?
5. What happens to unvested equity if one of us changes jobs or takes leave?

Common mistakes with vesting

• Treating unvested equity as money you already have when buying a house or committing to private school tuition.
• Assuming 22% withholding covers the tax on RSUs in the 35% or 37% bracket.
• Thinking an 83(b) election is available for RSUs. It is not.
• Holding vested shares by inertia, then facing a concentrated position with a large unrealized gain.
• Forgetting that CA SDI and WA Cares (unless you have an approved exemption) apply to RSU income with no wage cap.

What to write down for your children

Your kids will not remember your vest dates. They may remember how you decided what to keep and what to sell, if you write it down. A one-page note, kept with your other family documents, can record your sell-at-vest rule, your concentration limit and why you chose it. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”

Frequently asked questions

What does “shares vested” mean on my brokerage statement?

It means those shares have met their vesting conditions and are now yours. For RSUs, the vested shares are delivered to your brokerage account, usually net of shares withheld or sold for taxes. Their value on the vest date has been reported as wages, and that value becomes your cost basis for any later sale.

Do vested stock options cost me anything?

Not at vest. A vested option gives you the right to buy shares at the strike price, and you pay nothing until you exercise. Options do expire, at the end of the option term set in your grant or within a short window after you leave the company, so check your plan document for the exact deadline before letting vested options sit.

Can I lose shares that have already vested?

Vested RSU shares that have been delivered are yours, even if you leave. Some plans include clawback or forfeiture-for-cause terms, and vested but unexercised options can expire after you leave. Unvested shares are normally forfeited when employment ends, unless your agreement provides acceleration on termination or on a change of control.

Next step

Pull your equity grant agreements and list every upcoming vest for the next 12 months, with the estimated value of each. Compare the total federal withholding at 22% with your expected marginal rate, and decide before the next vest how you will cover the gap. If you want a second set of eyes on the full picture, the Tax & Wealth Assessment at Age Five Family Office™ starts there; concentration questions are covered under investment risk management.

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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