How RSUs Work: Vesting, Taxes and the Hold-or-Sell Decision for High-Income Families

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

A restricted stock unit (RSU) is your employer’s promise to give you a share of company stock once you reach a vesting date, usually by staying employed. When an RSU vests and the shares are delivered, their full market value that day is taxed as wages on your W-2, and your employer withholds tax by holding back or selling some of the shares. There is nothing to buy and nothing to exercise: after vesting you simply own stock, with a cost basis equal to its value on the vest date.

For a household earning $750,000 to $3 million in California or Washington, RSUs are often a third or more of total pay. The mechanics are simple. The two things that cause trouble are the tax bill at vest, which is usually larger than what was withheld, and the slow build-up of one company’s stock in the family balance sheet. This guide covers both, with a worked example at your income level.

How an RSU works, from grant to sale

1. Grant. Your offer letter or annual refresh awards a number of units, or a dollar value converted into units at a set share price. Nothing is taxed at grant, and you own nothing yet.
2. Vesting. Units vest on a schedule. A common pattern is four years with a one-year cliff and then quarterly vesting, but schedules vary by employer, and some are back-loaded. Leave before a vest date and the unvested units are usually forfeited.
3. Delivery (release). Shares land in your brokerage account, usually on or shortly after the vest date. This is the taxable moment. Private companies often use a “double trigger”, so delivery waits for an IPO or sale even though time-vesting is done.
4. Withholding. Your employer withholds federal, state and payroll taxes, usually by keeping back shares (withhold to cover) or selling some for you (sell to cover).
5. Holding or selling. From here the shares are ordinary stock. Your basis is the value that was taxed at vest. Any later change in price is a capital gain or loss.

Two common misconceptions are worth clearing up. First, you do not “exercise” RSUs. Exercising is something you do with stock options, which have a strike price you pay. RSUs have no strike price. Second, you cannot file an 83(b) election on RSUs. An 83(b) applies to restricted stock and early-exercised options. Under Treas. Reg. §1.83-3(e), an unfunded promise to deliver shares is not property until the shares are delivered, so RSUs are taxed as wages at delivery and there is nothing to elect.

How RSUs are taxed at vest in 2026

The value of the shares on the delivery date is ordinary income. It is reported on your W-2 alongside salary and bonus, and it is subject to:

• Federal income tax at your marginal rate. For 2026 the married-filing-jointly 35% bracket covers taxable income from $512,450 to $768,700, and 37% applies above $768,700 (IRS Rev. Proc. 2025-32).
• Medicare tax of 1.45% on all wages, plus the 0.9% Additional Medicare Tax on joint wages over $250,000 for 2026.
• Social Security tax of 6.2%, but only up to the 2026 wage base of $184,500 per earner (IRS Publication 15). Most earners in this range pass the base with salary alone, so a later vest often owes none.
• State tax, covered below for California and Washington.

Federal withholding on RSUs is treated as supplemental wages. For 2026, employers usually withhold a flat 22% on the first $1,000,000 of supplemental wages in the calendar year and must withhold 37% above $1,000,000. Withholding is a prepayment, not the tax you owe. If your marginal rate is 35% or 37%, 22% withholding leaves a gap of 13 to 15 cents on every dollar that vests below the $1,000,000 mark.

Worked example: a $950,000 Bay Area household with a $300,000 vest

Assumptions (illustrative, not a recommendation): a married couple in San Mateo County filing jointly for 2026. One spouse earns a $420,000 salary at a biotech company; the other earns $230,000. The first spouse also has $300,000 of RSUs vesting during the year, for total W-2 wages of $950,000. They take the $32,200 standard deduction for simplicity and have no other income.

The California line uses the 2025 joint schedule (the latest published by the Franchise Tax Board) and, for simplicity, the same taxable income as the federal return: $125,158 taxed at 9.3%, $148,584 at 10.3% and $26,258 at 11.3%. Real California taxable income differs slightly because the state’s deductions differ.

The point of the example is the shortfall. Roughly $42,000 of federal tax was not withheld, on top of any gap on salary and bonus. Families in this situation usually cover it with estimated payments or a higher W-4 withholding on salary during the year, which can reduce the April bill and the risk of an underpayment penalty. For a California household at this income, about half of each vest typically goes to tax, so that is a more realistic planning figure than the 22% withheld.

California versus Washington for RSU holders

California taxes RSU income as wages at up to 13.3% (12.3% plus a 1% Behavioral Health Services Tax on taxable income over $1,000,000, 2025 figures), and SDI of 1.3% applies to all wages with no cap for 2026 (EDD). California has no lower rate for long-term capital gains, so holding shares for a year after vest changes your federal rate but not your California rate.

Washington has no income tax on wages in 2026, so the same $300,000 vest for a Seattle family would owe no state income tax. Two items still apply. WA Cares premiums of 0.58% of wages, with no cap, are withheld unless you hold an approved exemption (WA Cares Fund). And when you later sell shares, Washington’s 7% capital gains tax can apply to long-term gains above the annual standard deduction ($278,000 for 2025), rising to 9.9% on taxable gains above $1,000,000 (WA Department of Revenue). Looking ahead, Washington has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028 (WA DOR), so planning for vests in 2028 and later should assume state tax for high earners.

What happens when you sell vested shares

Your basis in each lot is the value already taxed at vest. If you sell right away, there is little or no gain. If you hold more than a year, any gain is long-term for federal purposes (15% or 20% for 2026, plus the 3.8% Net Investment Income Tax for joint filers with modified AGI over $250,000). Hold a year or less and the gain is short-term, taxed at ordinary rates.

One reporting error costs RSU holders real money: brokers often show a basis of zero, or leave it blank, on Form 1099-B for RSU shares. If you file with that number, you pay tax on the same income twice. The fix is to adjust the basis on Form 8949 using the supplemental statement from your equity plan (IRS Form 8949 instructions). Our guide on reporting RSUs on your tax return walks through it.

The decision you actually have to make: hold or sell at vest

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 as making that purchase. Selling at vest has almost no tax cost, because the gain is near zero, so the tax argument for holding is weak. The real question is how much of the family’s net worth should depend on one company that also pays your salary.

A short checklist families can use:

• What share of liquid net worth is in employer stock today, including unvested grants?
• Is there a written cap (for example, a percentage you will not exceed) and a rule for what happens at each vest?
• Does the tax shortfall have a plan, through estimated payments or extra salary withholding?
• Are trading windows and any pre-planned sales (10b5-1 plans for insiders) on the calendar?
• Where does the after-tax cash go: the 529s, the mega backdoor Roth, the mortgage, a taxable account?

Related reading: how to calculate RSU value, withhold to cover versus sell to cover, and RSUs at private companies. For planning across all of a family’s equity and tax decisions, see our tax management work.

Common RSU mistakes in high-income households

• Treating 22% withholding as the tax. At a 35% or 37% federal bracket plus California, the true rate on a vest is close to half.
• Counting unvested RSUs as money you have. Unvested units are forfeited if you leave, and their value moves with the stock price.
• Holding every vest by default. Concentration usually happens through inaction, not a decision.
• Double-paying tax on sale because of a zero basis on Form 1099-B.
• Forgetting job-change math. When comparing offers, unvested RSUs you would forfeit are part of the price of moving.

What to write down for your kids

Children see the outcome of RSU decisions (a new house, a bigger 529) but rarely the reasoning. A one-page note on your rule for each vest, why you set your concentration limit where you did, and what you did when the stock fell is the kind of record a teenager can actually learn from. 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 helps families keep that record in a FamilyKnowledge® Library.

Frequently asked questions

Do you have to exercise RSUs?

No. RSUs have no strike price and nothing to exercise. Shares are delivered automatically when they vest, and tax is withheld at that time. “Exercise” applies to stock options (ISOs and NSOs), where you choose when to buy shares at a fixed price. If your plan statement shows an “exercise” button, the grant is an option, not an RSU.

Are RSUs taxed twice?

They should not be. The vest value is taxed once as wages, and that value becomes your basis. Only later growth is taxed as a capital gain. Double taxation happens when a broker reports zero basis on Form 1099-B and the return is not corrected on Form 8949. Check every RSU sale against your equity plan’s supplemental statement before filing.

What happens to unvested RSUs if I leave my job?

In most plans, unvested RSUs are forfeited on the day you leave. Some plans accelerate vesting on death, disability, a layoff or an acquisition, and the terms are in your grant agreement and plan document. Read those before you resign or accept a new offer, and time a departure after a vest date when you can.

Next step: pull your equity plan’s vest schedule for the rest of 2026, multiply each vest by the gap between 22% and your marginal federal rate, and set up an estimated payment or a W-4 change to cover it. If you would like help building a vest-by-vest plan for your family, the Tax & Wealth Assessment at Age Five Family Office™ is the place to start.

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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