By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
RSU stands for restricted stock unit: a promise from your employer to give you a set number of company shares later, once you meet a vesting condition, usually staying employed for a period of time. You pay nothing for an RSU. When it vests and the shares are delivered, their full market value is taxed as wages, exactly like a cash bonus, and from that moment you simply own stock.
That last point is the one most families miss. An RSU is not a discount, an option or a lottery ticket. It is salary paid in your employer’s stock, and every vest is a decision about whether you would buy that stock with the same amount of cash.
What an RSU is, and what it is not
A grant letter from Apple, Amazon, Genentech or Gilead usually shows a dollar value or a number of units and a vesting schedule. A common pattern is vesting over four years, often quarterly or with a one-year “cliff” first, but the schedule in your own plan document is what counts.
- Unvested RSUs are not yours yet. If you leave before a vest date, those units are usually forfeited. They are not income and they are not an asset on your balance sheet until they vest.
- There is no strike price. Unlike stock options, you do not buy anything. An RSU is worth the share price on the day it vests, whatever that price is. See do RSUs have a strike price for the comparison with options.
- No 83(b) election. An 83(b) election applies to restricted stock and early-exercised options. An RSU is an unfunded promise, not property, until shares are delivered, so 83(b) is not available (Treas. Reg. §1.83-3(e)).
- Restricted stock is different. “Restricted stock” or “restricted shares” are actual shares issued up front with strings attached. Some non-US plans call RSUs “restricted share rights”. For a US W-2 employee, the tax treatment above applies to RSUs.
RSU vs PSU: the performance version
A PSU (performance share unit) works like an RSU, except the number of shares you finally receive depends on company results over a measurement period, such as revenue growth or total shareholder return against peers. The payout can be below target, zero, or above target, depending on your plan’s formula. PSUs are common for directors and executives. Tax treatment at delivery is the same as an RSU: the value of shares delivered is wages. For planning, count PSUs at a conservative payout, not at the maximum.
Private companies often use “double-trigger” RSUs, which vest only after both a service date and a liquidity event such as an IPO or sale. Those raise their own planning issues, covered in RSUs at private companies.
How RSUs are taxed at vest in 2026
At vest, the fair market value of the shares delivered is added to your W-2 wages (IRS Publication 525). That value then becomes your cost basis in the shares. Any change in price after vest is a capital gain or loss when you sell: short-term if you sell within a year, long-term after more than a year.
Your employer withholds tax at vest, usually by keeping some of the shares (“withhold to cover” or “sell to cover”). For 2026, federal withholding on supplemental wages is an optional flat 22%, rising to a mandatory 37% on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15). Withholding is not the tax you owe. For 2026 the married filing jointly 35% bracket starts at $512,450 of taxable income and the 37% bracket at $768,700 (Rev. Proc. 2025-32). A household in those brackets that is withheld at 22% will usually owe more in April. The mechanics are in withhold to cover vs sell to cover.
Payroll taxes also apply. For 2026, Social Security tax is 6.2% on wages up to $184,500, and Medicare is 1.45% on all wages, plus the 0.9% Additional Medicare Tax on joint wages over $250,000 (IRS). Social Security is counted per employee: if your own salary already exceeds the wage base for the year, the RSU income adds Medicare tax only.
California vs Washington
California taxes RSU income as ordinary wages. The top rate is 13.3%, which is the 12.3% bracket plus a 1% Behavioral Health Services Tax on taxable income over $1,000,000 (FTB, 2025 schedules; 2026 schedules were not yet published at review). State Disability Insurance takes another 1.3% of all wages in 2026, with no cap (EDD). California has no lower rate for capital gains, so growth after vest is also taxed as ordinary income when you sell (FTB).
Washington has no individual income tax in 2026, so the vest itself carries no state income tax. Two qualifications for this reader. First, a 9.9% income tax on AGI over $1,000,000 takes effect January 1, 2028 (WA DOR), which matters for anyone with RSUs vesting into 2028 and beyond. Second, if you hold vested shares and later sell at a gain, Washington’s capital gains tax is 7% on long-term gains above the standard deduction ($278,000 for 2025, the latest published) and 9.9% on taxable gains above $1,000,000 (WA DOR).
Worked example: a $900,000 Bay Area household with a $300,000 vest
Assumptions (illustrative): married filing jointly, California residents, two salaries of $300,000 each, plus $300,000 of RSUs vesting during 2026. Standard deduction only ($32,200 for 2026), no other income. California is estimated with 2025 brackets and no deductions, to keep the math visible.
| Tax on the $300,000 of RSU income | Amount | How |
|---|---|---|
| Federal income tax | $106,982 | Taxable income rises from $567,800 to $867,800: $200,900 at 35% plus $99,100 at 37% |
| Medicare (1.45% + 0.9%) | $7,050 | 2.35% of $300,000; Social Security already maxed on each salary |
| California income tax | $29,555 | $142,958 at 9.3%, $148,584 at 10.3%, $8,458 at 11.3% (2025 brackets) |
| California SDI | $3,900 | 1.3% of $300,000 |
| Total | $147,487 | About 49% of the vest value |
Federal withholding at the 22% flat rate would be $66,000, leaving roughly $40,982 of federal tax still due on the RSUs alone. California withholding on supplemental wages also tends to run below this family’s marginal rate. Without an adjusted W-4, quarterly estimates or a planned extra share sale, the gap arrives as a surprise in April, possibly with an underpayment penalty.
The same family in Bellevue would owe the federal and Medicare amounts but no state income tax on the 2026 vest, so about $33,455 (the California income tax plus SDI lines) would not apply. Washington payroll premiums, such as WA Cares, are not modeled here. That gap narrows from 2028 for households with AGI over $1,000,000. For valuing grants before they vest, see how to calculate RSU value.
The real decision: hold or sell each vest
Because the tax is due at vest whether you sell or not, holding vested shares is the same as taking a cash bonus and buying your employer’s stock with it. A useful test: if this vest had arrived as cash, would you put all of it into this one company? For most families the answer is no, because their salary, future grants, and often the second spouse’s job are already tied to the same company or sector.
- Selling at vest usually creates little or no extra tax, since your basis equals the vest price. It turns stock income into cash you can direct to the 529, the mortgage, or a diversified portfolio.
- Holding can make sense for a deliberate slice, with a written limit (for example, no more than a set percentage of net worth in one stock) and a reason you can explain.
- In California, holding for more than a year does not lower your state rate on the gain. In Washington it can trigger the state capital gains tax above the standard deduction.
For most families with equity pay, concentration is a bigger long-term risk than the tax bill. More on that in investment risk management and tax management.
Common RSU mistakes at this income level
- Treating 22% withholding as the full tax. At a 35% to 37% federal bracket plus California, it rarely is.
- Paying tax twice on the 1099-B. Brokers often report a cost basis of zero or leave it blank for shares from RSUs. The vest value was already in your W-2, so the basis must be adjusted on Form 8949. See how to report RSUs on your tax return.
- Counting unvested grants as wealth. Unvested units can disappear with a job change or a falling share price. Plan the household budget on salary, not on future vests.
- Letting shares pile up by default. Holding is often not a decision but inertia, and after several years one stock can become most of the family’s net worth.
What to write down for your kids
Your children will not remember your vest schedule. They may remember whether you had a rule. A short note in your FamilyKnowledge® Library might say: what RSUs are, why you sell most vests, what limit you set on company stock, and what you did when the price dropped. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” Our Age Five Wealth Education work starts with exactly this kind of written decision.
FAQ
Is an RSU the same as a share of stock?
No. An RSU is a promise to deliver a share later. Before vesting you have no shares, no voting rights, and usually no dividends, although some plans pay dividend equivalents. At vest, each unit typically converts into one share (or its cash value), which is taxed as wages and then held in your brokerage account like any other stock.
Do I pay tax again when I sell RSU shares?
Only on the change in value after vest. Your cost basis is the share price on the vest date, which was already taxed as wages. If you sell immediately, there is little or no gain. If the price rises before you sell, the increase is a capital gain; if it falls, you have a capital loss you can use against other gains.
What does “equity RSU” mean on an offer letter?
It means part of your total pay is granted as RSUs rather than cash. The offer usually states a dollar value that is converted into units using an average share price around the grant date. That figure is a starting point, not a promise: what you actually receive is the number of units times the price on each future vest date.
Next step: pull your grant summary from your equity plan portal, list every vest scheduled for the next 12 months, and compare expected withholding against your marginal rate. If the gap is large, the Tax & Wealth Assessment walks through it with you.
This is general education, not individual tax advice. 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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