RSU Tax Strategy: What High-Income Families Can Actually Control

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

A good RSU tax strategy accepts one fact: the tax at vest cannot be avoided. The full value of the shares is taxed as wages the day they are delivered. What a high-income family can control is everything around that moment: closing the withholding gap before April, deciding whether to keep the shares, which lots to sell and when, how much other income the vest stacks on, how to give, and which state gets to tax the vest.

For a household earning $750,000 to $3 million in California or Washington, those decisions can be worth tens of thousands of dollars a year. None of them requires an exotic product. They require a calendar and someone who keeps it.

What is fixed: the tax on the vest itself

An RSU is a promise to deliver shares, not property, so nothing is taxed at grant and an 83(b) election is not available (Treas. Reg. §1.83-3(e)). When the shares are delivered, their market value that day is ordinary wage income on your W-2. It is taxed at your top federal bracket, plus Medicare, plus state tax in California. Your cost basis in the shares is that same value, so later you are taxed only on growth or decline after the vest.

That means “RSU tax strategy” is really five separate decisions. The table below puts them on one calendar.

The RSU tax calendar for a high-income family

Close the withholding gap before April

Employers usually withhold federal tax on RSU income as supplemental wages at a flat 22%, rising to 37% only on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15, 2026). At a 35% or 37% bracket, 22% is a down payment, not the tax.

Take a married couple with $500,000 of combined salary and a $500,000 vest in 2026. After the $32,200 standard deduction, the vest moves federal taxable income from $467,800 to $967,800, and federal tax from $102,608 to $280,250.50 (IRS Rev. Proc. 2025-32). The vest adds $177,642.50 of federal tax. Payroll withheld 22%, or $110,000. The family still owes about $67,600 federal on that vest alone.

The fix is boring and effective: raise withholding on salary with a new W-4, ask whether your equity plan lets you elect a higher withholding rate on vests, or make quarterly estimated payments. For 2026, if your 2025 AGI was over $150,000, paying in at least 110% of your 2025 tax generally avoids the underpayment penalty (Form 1040-ES, 2026). How shares are sold or held back at vest is covered in withhold to cover vs sell to cover.

Shrink the income the vests stack on

Every dollar of pre-tax deferral comes off the top of your income, where the vest is taxed. For 2026:

• 401(k) deferrals: $24,500 per spouse (IRS Notice 2025-67). For a California couple at the 37% federal and 11.3% state brackets (state rate from the 2025 schedule), $49,000 of deferrals cuts this year’s income tax by about $23,700. This is a deferral, not a permanent saving, but it moves income from your highest-taxed years.
• Mega backdoor Roth: where the plan allows after-tax contributions with in-plan conversion, total additions can reach $72,000 per person for 2026, including employer money. It does not lower this year’s tax, but it moves vest cash into a Roth account that grows tax-free.
• Dependent care FSA: $7,500 per household for 2026 if your employer has adopted the higher limit (P.L. 119-21). At a 37% federal bracket, that is about $2,800 less federal income tax a year while the kids are in paid child care. California generally does not follow P.L. 119-21 (FTB), so ask your CPA whether the amount above the old $5,000 limit is excluded for California.
• Deferred compensation or RSU deferral: some employers let senior staff defer salary, bonus or RSU delivery to a later year. The election usually has to be made before the year the pay is earned, and the deferred amount is an unsecured promise from your employer, so it adds to your exposure to one company.

Decide what to do with the net shares

Keeping vested shares is the same as receiving cash and buying your employer’s stock with it. Many families sell at vest because there is little or no gain yet to tax, and move the money into a diversified plan. Others hold a set amount on purpose. The tax question is whether holding long enough for long-term capital gains is worth the risk. Usually it is worth less than people think.

Worked example: hold 11 months or 13 months?

Assumptions (illustrative, 2026 tax year): a married couple filing jointly with about $1 million of wages keeps $200,000 of vested shares. The stock rises 20%, for a $40,000 gain. Their taxable income is above $613,700, so long-term gains face the 20% federal rate, and their income is above the $250,000 threshold for the 3.8% Net Investment Income Tax (IRS). Short-term gains are taxed at their 37% bracket. California tax is shown at 11.3% (2025 schedule) and leaves out the 1% Behavioral Health Services Tax on taxable income over $1,000,000, which would add the same amount to both California columns.

Waiting saves $6,800 in both states. California taxes the gain the same either way, because it has no lower rate for capital gains. Washington has no tax on short-term gains or wages in 2026, but its capital gains tax is 7% on long-term gains above an annual standard deduction ($278,000 for 2025, the latest published figure) and 9.9% on taxable gains above $1,000,000 (WA Department of Revenue). A large Washington sale can cross that line.

Now the other side. The $6,800 is 3.4% of the $200,000 position. A routine 3.4% drop in the stock during the extra two months wipes out the benefit before any tax effect of the loss. Holding for the long-term rate only makes sense when you would want to own the stock anyway.

Sell the right lots, and watch vest dates

If you hold shares from several vests, each lot has its own basis and holding period. Telling your broker which lot to sell at the time of the sale, and getting written confirmation, is an adequate identification under IRS rules (IRS Publication 550). Selling a lot that vested at a high price can produce a small gain or even a loss, where the broker’s default might sell your cheapest, oldest shares.

Losses in employer stock need care. Under the wash sale rule, a loss is not deductible if you acquire substantially identical stock within 30 days before or after the sale (same publication). A quarterly vest falling inside that window can be treated as such an acquisition, so a loss sale two weeks before a vest may be disallowed and added to the basis of the new shares instead. Ask your CPA before harvesting losses in company stock near a vest date.

Also check the basis on Form 1099-B when you sell. Brokers often report RSU shares with a zero or blank basis, and if the return uses it, the vest value is taxed twice. Our guide on how to report RSUs on your tax return shows the correction.

Give appreciated shares instead of cash

If your family gives to charity, shares held more than one year after vest can be donated directly. You avoid tax on the growth since vest, and the deduction is generally based on fair market value if you itemize (IRS Publication 526). Giving $50,000 of shares with a $20,000 gain, instead of selling them and giving cash, avoids about $7,020 of tax for the California couple above (23.8% federal plus 11.3% state on $20,000). A donor-advised fund lets you give a larger block in a big vest year and recommend grants to charities over later years.

Moving from California to Washington does not end California tax on RSUs

Families who move north often expect the next vest to be free of state tax. California taxes RSU income of a nonresident to the extent the services were performed in California between the grant date and the vest date (FTB Publication 1004). One reasonable method is a workday ratio: California workdays from grant to vest divided by total workdays in that period. A grant earned for two years in Cupertino and two years in Seattle can leave about half of that vest taxable by California. Keep a workday log from the day you plan the move, and expect that your employer’s payroll may withhold California tax on part of those vests.

Washington residents should also plan for a new 9.9% state income tax on AGI above $1,000,000, effective January 1, 2028 (WA Department of Revenue). The “no income tax” advantage for large vests has a known end date for this income level.

Common mistakes in RSU tax planning

• Holding shares to “avoid tax.” The vest is already taxed. Holding only changes how future growth is taxed, and it adds risk to one company that already pays your salary.
• Treating payroll withholding as the final bill. At a 37% bracket, 22% leaves a gap every year.
• Budgeting on the gross grant. A $500,000 vest in California is closer to $250,000 after tax. House and school decisions should use the net figure. See how to calculate RSU value.
• Letting vests pile up for years. Our investment risk management work starts with one number: what share of your net worth is your employer’s stock.

What to write down for your kids

Your children will never see a vest. They will see the house, the school and the giving it paid for. One page a year is enough: what vested, what you sold, what you kept and why, and what you gave. By the time they get their first offer letter with RSUs, they can read how their parents thought about it. Conversations fade. Documentation compounds.

Frequently asked questions

How do you avoid double taxation on RSUs?

RSUs are not taxed twice under the rules, but they often are in practice when a broker reports a zero cost basis and nobody corrects it. Your basis is the value that was included on your W-2 at vest. When you sell, make sure the return uses that basis, using the supplemental information from your broker, so only growth after vest is taxed.

Is there any way to defer the tax on an RSU vest?

Only if your employer offers a deferral program that lets you elect, in advance, to have shares delivered in a later year. Without one, the tax year is set by the vest date. You can still lower the rest of your taxable income with 401(k) and other pre-tax elections, which reduces how much of the vest lands in the top bracket.

Should I sell RSUs at vest for tax reasons?

Selling at vest usually creates little or no extra tax, because your basis equals the vest value. The reason to sell is usually risk, not tax: your salary and your shares depend on the same company. Holding is a separate investment decision and should be sized the way you would size any single stock.

Next step: list this year’s remaining vest dates, multiply the expected value by your top federal rate minus 22%, and compare it with what you have set aside. If you want someone to run the calendar above each year, 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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