Selling RSUs: How They Are Taxed When Sold, and When to Sell

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

RSUs are taxed twice in two different ways. At vest, the full market value of the shares is taxed as wages, whether you sell or not. When you later sell, only the change in price since vest is taxed, as a short-term capital gain if you held the shares one year or less and a long-term gain if you held them more than one year.

You can sell RSUs once they have vested and the shares have been delivered to your brokerage account, as long as your company’s trading window is open. You cannot sell unvested RSUs, and at a private company you usually cannot sell at all until an IPO, an acquisition or a company-run tender offer.

For a California or Washington household earning $750,000 or more, the sale itself is rarely the big tax event. The vest is. The real decision is whether to keep holding stock you already paid wage tax on, and how much of your family’s net worth should ride on one employer.

What happens to your RSUs at vest, before you sell anything

An RSU is a promise to deliver shares later. It is not property for tax purposes until the shares are delivered, which is why an 83(b) election is not available for RSUs (Treas. Reg. §1.83-3(e)). When the shares arrive, three things happen at once:

• The value counts as wages. Shares times the price on the vest date shows up on your W-2, subject to federal income tax, Social Security (up to the $184,500 wage base for 2026), Medicare and, in California, state income tax and SDI.
• Your employer withholds, usually by selling some shares. Federal supplemental withholding is usually the optional flat 22% rate for 2026 (employers may instead use the aggregate method), rising to a mandatory 37% on supplemental wages above $1,000,000 in the calendar year (IRS Pub. 15). California’s optional flat supplemental rate for bonuses and stock options is 10.23% for 2026, which many employers apply to RSU vests (EDD DE 44, 2026).
• Your cost basis is set. The value taxed as wages becomes your basis in the shares you keep (IRS Pub. 525). Your holding period starts the day after delivery.

Withholding is not the tax you owe. At a 35% or 37% federal bracket, 22% withholding usually leaves a balance due in April. Our guide to sell to cover versus a same-day sale covers how the withholding shares are chosen.

How RSUs are taxed when sold

When you sell, you compare the sale price with your basis (the vest-date value).

Sources: IRS Topic 409, Rev. Proc. 2025-32, IRS NIIT page, California FTB, Washington DOR.

If you sell on the vest date, the sale price and the basis are almost the same, so there is little or no gain to tax. That is why “selling immediately” usually costs nothing extra in tax.

Worked example: a roughly $1 million California household with a $200,000 vest

Assumptions (illustrative): married filing jointly in California, household W-2 income of about $1,050,000 including the vest. One spouse at a Bay Area biotech company has 1,000 RSUs vest at $200, so $200,000 of wages. After 401(k) deferrals and deductions, their federal taxable income before the vest is about $770,000, so the whole vest lands in the 37% bracket for 2026. Their California taxable income before the vest is $750,000. This spouse has already passed the 2026 Social Security wage base, so no Social Security tax applies to the vest.

Tax on the vest itself

Typical withholding is $44,000 federal (22%) plus $20,460 California (10.23%) plus the Medicare and SDI amounts. That leaves roughly $30,000 federal and $700 California still owed. Families with several vests a year often find a five-figure balance due in April unless they raise withholding or make estimated payments.

Then the sale: three outcomes on the same shares

Basis is $200,000. Assume the household stays in the 37% federal bracket, the 20% long-term bracket and an 11.3% California marginal rate.

1. Sell on the vest date at $200. No gain, no further tax. The family has $200,000 of cash before vest taxes and can redirect it to goals.
2. Sell after 10 months at $260 (short-term). Gain of $60,000. Federal $22,200 + NIIT $2,280 + California about $6,780 = about $31,260.
3. Sell after 18 months at $260 (long-term). Same $60,000 gain. Federal $12,000 + NIIT $2,280 + California about $6,780 = about $21,060.

Waiting past one year saved about $10,200 of federal tax in this example. California took the same amount either way. The price of that saving was eight more months with $200,000 in one stock. If the shares had fallen 30% instead, to $140, the family would have lost $60,000 of value and been able to deduct only $3,000 of the loss against wages that year (after offsetting any other capital gains, with the rest carried forward).

The same vest in Washington

A Seattle-area household with the same $200,000 vest pays the same federal income tax and Medicare tax but no state income tax on the wages in 2026 (Washington DOR). The WA Cares Fund premium of 0.58% of wages, about $1,160 here, applies unless the employee has an approved exemption. On the sale, short-term gains face no Washington tax, and long-term gains are taxed at 7% only above the state standard deduction ($278,000 for 2025), at 9.9% on taxable gains above $1,000,000.

Two cautions for high earners. First, Washington has enacted a 9.9% income tax on AGI above $1,000,000, effective January 1, 2028 (SB 6346), with details still pending DOR guidance. Second, a large concentrated position built up over years can push a single long-term sale well past the capital gains deduction.

Can you sell RSUs immediately, before an IPO, or during a blackout?

• Immediately after vest: usually yes, once the shares appear in your stock plan account (delivery can lag the vest by a few days; see vested but not released).
• During a blackout: no. Employees with access to earnings information are often barred from trading for weeks around each quarter. Officers and others in frequent blackouts often use a Rule 10b5-1 trading plan, set up in advance with a waiting period before the first sale (SEC rule).
• Before an IPO: usually not. Most private-company RSUs are “double-trigger”: they need both time vesting and a liquidity event before shares are delivered and taxed. Some companies run tender offers. See RSUs at private companies.
• Unvested units: never. They are not yet yours to sell.

Three mistakes that cost high earners real money

1. Paying tax twice on the same income. Brokers often report RSU shares on Form 1099-B with a basis of zero or a basis that leaves out the vest value. If you file the 1099-B as is, you pay tax again on income already on your W-2. The fix is to report the correct basis on Form 8949 with adjustment code B (Form 8949 instructions). Our guide on reporting RSUs on your tax return walks through it.
2. Holding for long-term treatment in California. Long-term status only lowers the federal rate. For a California family in the 37% bracket the saving is 17 points on the gain, not on the full position, and it comes with a year of single-stock risk.
3. Selling at a loss right before the next vest. If new shares vest within 30 days before or after a loss sale, the wash sale rule can disallow part of the loss for now (IRS Pub. 550). With quarterly or monthly vests, plan loss sales around the vest calendar.

The decision: sell at vest, hold, or follow a schedule

A useful test: if your employer paid this vest in cash, would you use the cash to buy its stock today? If not, holding the shares is the same choice. Many families settle on a written rule rather than a fresh debate each quarter, for example:

• Sell each vest on delivery, unless employer stock is below a set share of investable assets (some families pick 10%).
• Hold a defined block for long-term treatment, and sell any lot that turns into a loss before the next vest window.
• Route sale proceeds straight to named goals: 529 accounts for the kids, the mega backdoor Roth, a home down payment, or a diversified taxable account.

For Amazon, Apple, Gilead or Genentech employees, the mechanics are the same: shares are sold through the company’s stock plan broker, and the tax rules above apply. Our investment risk management and tax management work covers setting the rule and the withholding around it.

What to write down for your kids

A sell rule is a family decision, not only a tax one. Write a one-page Decision Memo: what share of your wealth you allow in one stock, why, and what you did when the stock dropped. Your children will not remember the price. They can learn from the reasoning. 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

Do you pay tax twice when you sell RSUs?

Not if you report it correctly. The vest value is taxed once as wages. At sale, only the price change since vest is taxed. Double tax happens when the 1099-B shows a zero or low basis and the return is filed without correcting it on Form 8949. Check the supplemental statement from your stock plan broker, which usually shows the adjusted basis.

Is it better to sell RSUs right away?

Selling at vest adds no tax beyond what the vest already triggered, and it removes single-stock risk. Holding may make sense when employer stock is a small part of your net worth and you are comfortable with the volatility. Tax alone is rarely a strong reason to hold, especially in California, where long-term gains are taxed as ordinary income.

How much should I withhold on RSU vests?

Enough to close the gap between 22% federal withholding and your actual bracket. For a household in the 37% bracket, that is roughly 15 more cents per dollar of vest. Many families raise W-4 withholding on salary or make quarterly estimated payments. A tax professional can run the safe harbor figures for your return.

Next step: list every vest due in the next 12 months, the expected withholding, and your sell rule for each. If you want a second set of eyes on the numbers, our Tax & Wealth Assessment starts there.

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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