How to Minimize Taxes on RSUs: What Actually Works for High-Income Families

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

You cannot avoid the tax on an RSU vest: the value of the shares on the day they are delivered is wages, taxed at your full marginal rate, and the 83(b) election does not apply to RSUs. What you can do is lower the income that sits in your top bracket, give appreciated shares instead of cash, hold any shares you keep long enough for long-term rates, and avoid the reporting and withholding mistakes that cost high earners the most. For a California household earning about $1 million, those moves can be worth tens of thousands of dollars a year; the “strategies” that promise to make vest-day tax disappear are not real.

This page sorts the common RSU tax strategies into three groups: what actually lowers the tax, what only moves it to a later year, and what only fixes cash flow or penalties. The numbers are for 2026 unless labelled otherwise.

Why RSU tax planning starts after the vest, not before it

An RSU is a promise to deliver shares later. It is not property until the shares arrive, so there is nothing to make an 83(b) election on (Treas. Reg. §1.83-3(e)). When shares are delivered, their fair market value is added to your W-2 like salary. The only RSU-specific choices most employees have are how many shares to sell at vest, whether to hold the rest, and, at some companies, whether to defer delivery under a deferred compensation plan.

That means nearly every useful strategy works on the rest of your tax return: the other income in your top bracket, your deductions, and how you handle shares after they vest. For a two-earner California family with about $1 million of taxable income, the combined rate on the top dollar of a vest is about 52%: 37% federal, 11.3% California (2025 brackets, the latest published), 1.3% California SDI, and 2.35% Medicare (1.45% plus the 0.9% Additional Medicare Tax). Above $1,000,000 of California taxable income, the 1% Behavioral Health Services Tax adds another point (2025). In Washington the same dollar costs about 40%, because there is no state income tax in 2026 and the WA Cares premium is 0.58%.

The three kinds of RSU tax strategy

Worked example: a $1.05 million San Jose household with a $450,000 vest

Assumptions, all illustrative: married filing jointly, two children aged 4 and 8. One parent earns a $350,000 salary at a Bay Area tech company and has $450,000 of RSUs vesting in 2026. The other is a W-2 physician earning $250,000. Total wages are $1,050,000. We assume federal taxable income of about $950,000 and California taxable income of about $960,000 after deductions (we have not computed the deductions), and that neither parent is yet contributing to a 401(k). Both earners are already above the $184,500 Social Security wage base, so the vest adds no Social Security tax.

Federal tax on the vest. The $450,000 stacks on top of $500,000 of other taxable income. Using the 2026 joint brackets, it is taxed $12,450 at 32%, $256,250 at 35% (up to $768,700) and $181,300 at 37%: about $160,750 in total (IRS Rev. Proc. 2025-32). The employer withholds the optional flat 22%, or $99,000 (IRS Publication 15). That leaves a federal gap of about $61,750.

California tax on the vest. Using the 2025 joint schedule, the slice from $510,000 to $960,000 of California taxable income comes to about $44,700 (FTB 2025 tax rate schedules). If the employer applies California’s optional 10.23% flat rate for bonuses and stock options to the vest (EDD DE 44, 2026), withholding is $46,035 here, so California is roughly covered at this income. Check your pay stub for the rate your employer actually uses. The real gap for this family is federal.

Now apply each strategy to the same family.

1. Fix the federal gap first (cash flow, not savings)

A $61,750 balance due is not a tax problem; it is a planning problem. Underpaying during the year can add a penalty. For 2026, a household whose 2025 AGI was over $150,000 avoids the federal underpayment penalty if withholding and estimated payments cover at least 110% of its 2025 tax (2026 Form 1040-ES). The simplest fixes are extra withholding on the physician’s paychecks through a new W-4, or a federal estimated payment soon after the vest. California is stricter for very high earners: with California AGI of $1,000,000 or more, estimates must be based on current-year tax, not last year’s (FTB estimated tax payments). This family’s California AGI is about $1,050,000 before any 401(k) deferrals, so the stricter rule applies.

Two related points. Sell to cover is how the employer funds withholding; it is not a strategy in itself. And once supplemental wages paid to one employee by the same employer pass $1,000,000 in a calendar year, the employer must withhold federal tax at 37% on the excess, which narrows the gap for very large vests (Pub 15). For a deeper look at how the shares are split at vest, see withhold to cover versus sell to cover.

2. Lower the income in the top bracket (defers tax)

Each parent can defer $24,500 into a 401(k) or 403(b) for 2026 (IRS Notice 2025-67). For this family, $49,000 of deferrals comes off income taxed at 37% federal and 11.3% California, so income tax this year falls by about $23,667. Medicare and SDI still apply to deferred pay, and the tax comes due when the money is withdrawn, so this is a deferral, not a permanent saving. It is still usually worth doing, because the withdrawal is likely to happen in years with a lower rate than 48%.

Some employers also offer a non-qualified deferred compensation plan, and a few let senior employees defer RSU delivery. Deferred amounts are typically an unsecured promise from your employer, so they add to the risk you already carry in company stock. Read the plan document before you elect.

3. Give shares, not cash (lowers tax)

If the family gives to charity, the cheapest way is to give company shares they have held more than one year, directly or through a donor-advised fund. Suppose they give $50,000 of shares that vested two years ago at $20,000. Selling would trigger a $30,000 long-term gain, taxed at 20% federal plus the 3.8% Net Investment Income Tax and 11.3% California, or about $10,530. Giving the shares avoids that tax entirely, and the gift is generally deductible at full market value, up to 30% of AGI for appreciated stock given to a public charity (IRS Publication 526).

From 2026 the federal deduction is worth less than before for this reader. Charitable gifts are deductible only above 0.5% of the contribution base (roughly AGI), and households in the 37% bracket have their itemized deductions trimmed so each dollar saves about 35 cents (P.L. 119-21, sections 70425 and 70111). California generally does not follow those federal changes (FTB 2025 Form 540 booklet). A large vest year is still the year to front-load several years of planned giving.

4. Hold kept shares more than a year, and know what that costs

Your cost basis is the value taxed at vest, and the holding period starts that day. Selling right away usually means little or no further tax. If you keep shares and they grow, a sale within a year is taxed federally at ordinary rates; after a year it gets long-term rates. On a $100,000 gain this family would pay 37% federally on a short-term sale versus 20% on a long-term one, a $17,000 difference (2026 rates; the 3.8% NIIT applies either way). California taxes both at the same ordinary rates (FTB), so holding saves nothing at the state level there.

Washington is different: it taxes long-term gains at 7% above an annual standard deduction ($278,000 for 2025, the latest published) and 9.9% on taxable gains above $1,000,000 (WA DOR). A Seattle family with $100,000 of long-term gains and no others would owe no Washington tax on them (using the 2025 deduction).

The trade-off is risk. Holding to save $17,000 on $100,000 of growth makes sense only if you would happily buy that stock today with cash. Many families we work with already have their salary, unvested grants and vested shares tied to one company. See investment risk management for how we think about that concentration.

5. Use losses, and watch the vest calendar

Capital losses offset capital gains without limit, and up to $3,000 a year of net loss can offset ordinary income, with the rest carried forward (IRS Topic 409). If you sell company shares at a loss, be careful about timing: buying substantially identical stock within 30 days before or after the sale makes it a wash sale and defers the loss (IRS Publication 550). A quarterly vest of the same stock inside that window can cause the same problem, so ask your CPA to check the vest dates before you sell at a loss.

The mistake that costs the most: paying tax twice on sold shares

Brokers often report RSU sales on Form 1099-B with a cost basis of zero or a partial amount, because the vest value was already taxed through payroll. If the return uses the broker’s number without correcting it on Form 8949, you pay tax on the same dollars twice (Form 8949 instructions). For our family, selling $300,000 of shares that vested more than a year ago at $300,000, with no growth, and reporting a zero basis would add a $300,000 phantom gain: about $107,900 of extra tax. That is $71,400 federal (20% plus the 3.8% NIIT) and about $36,500 California (11.3%, plus the 1% Behavioral Health Services Tax on the $260,000 that lifts California taxable income above $1,000,000, using 2025 rates). Check every RSU sale against your vest records. Our guide to reporting RSUs on your tax return walks through it.

Moving from California to Washington does not erase the tax on future vests

For a family weighing a move to Seattle or the Eastside, the difference is real: at the top-dollar rates above, each $100,000 of vest income costs about $51,950 in California versus about $39,930 in Washington in 2026. But California taxes nonresidents on compensation for services performed in California, and it taxes equity compensation such as stock options on that source basis even after you move (FTB Publication 1100). Grants earned while working in California can stay partly taxable there after you move; how a vest is split between the states depends on where you worked between grant and vest, so have your CPA confirm the allocation. And Washington has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028 (WA DOR), so a household at this income should not plan around a permanent zero.

Common RSU tax myths

• “File an 83(b) to lock in a low value.” Not available for RSUs. It applies to restricted stock and early-exercised options.
• “If I don’t sell, I don’t owe tax.” The tax is triggered by delivery, not by sale. Holding only adds a second tax on later growth.
• “22% is my RSU tax rate.” It is a withholding rate. A household in the 35% or 37% bracket owes more.
• “A big refund means good planning.” It means you lent money to the IRS interest-free. The goal is a small balance either way.

The decision this family actually has to make

Most of the value above comes from three rules written down once and followed at every vest: how many shares to sell on vest day, the most you will hold in company stock, and how the withholding gap gets paid. Our tax management work starts there, because a delegator needs a rule, not a quarterly debate.

What to write down for your kids

Your children will see that the family had stock and sold some of it. They will not see why. A short Decision Memo in your FamilyKnowledge® Library, covering why you sell at vest, why you give shares rather than cash, and what concentration felt too risky, gives them your reasoning when they get their first equity grant. As Kevin 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 capture these decisions.

Frequently asked questions

Can I reduce taxes on RSUs by holding them?

No. The value at vest is taxed as wages whether you hold or sell. Holding changes only how later growth is taxed: after one year, federal long-term rates apply instead of ordinary rates. California taxes both at the same rate, and Washington taxes only long-term gains, above an annual standard deduction.

Can I contribute RSU income to my 401(k)?

Many plans exclude RSU income from the pay used for 401(k) deferrals, so check your plan’s definition of compensation. Either way, the $24,500 limit for 2026 is per person, and you can reach it from salary. Deferring from salary lowers the same top-bracket income the vest pushed up.

How do I know if I owe more tax on my RSUs?

Compare 22% federal withholding to your marginal bracket. If your joint taxable income is above $512,450 in 2026, you are in the 35% bracket or higher, and each vest will likely leave a federal balance due. A mid-year estimate that includes the full vest schedule shows the exact gap.

Next step

Before your next vest, put your 2026 vest schedule, both salaries and your withholding to date into one estimate, then set the three written rules above. If you would like a second set of eyes, Age Five Family Office™ runs this as part of the Tax & Wealth Assessment.

This is general education, not individual tax advice. 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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