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

RSUs are taxed twice, at two different moments. When shares vest and are delivered, their full market value is taxed as wages, exactly like salary. When you later sell, only the change in price since vest is taxed, as a capital gain or loss. The value taxed at vest becomes your cost basis, so the same dollars should never be taxed again.

The rules are simple. What catches high-income families is the gap between what payroll withholds and what the vest actually costs. For a two-earner household in California or Washington with $800,000 of salary, a $400,000 vest can leave a bill of roughly $60,000 to $65,000 in April. This guide shows where that gap comes from, how California and Washington differ, and how to avoid paying tax on the same shares twice.

How RSUs are taxed at vest

A restricted stock unit is a promise from your employer to deliver shares later. Until the shares are delivered, you own nothing the IRS can tax, which is also why an 83(b) election does not apply to RSUs (Treas. Reg. 1.83-3(e)). An 83(b) election is for restricted stock and early-exercised options, not RSUs.

On the day shares are delivered, which is usually the vest date, the fair market value of those shares is compensation (IRS Publication 525). It shows up on your W-2 with your salary and is subject to:

Federal income tax at your ordinary rates. For 2026, the married-filing-jointly 35% bracket runs from $512,450 to $768,700 of taxable income, and 37% applies above $768,700 (Rev. Proc. 2025-32).
Social Security at 6.2%, but only up to the 2026 wage base of $184,500. Most families in this income range pass it on salary alone, so later vests owe none (IRS Publication 15).
Medicare at 1.45% with no cap, plus the 0.9% Additional Medicare Tax on wages above $250,000 for a joint return. Your employer starts withholding the extra 0.9% once it has paid you more than $200,000 in the year (IRS).
State tax, which is where California and Washington split apart (covered below).

If shares vest but are delivered a few days later, the tax follows delivery. Our guide to RSUs that are vested but not released covers that timing.

Why the 22% withholding leaves a $750k household owing in April

Your employer treats vest income as a supplemental wage. For 2026, an employer may withhold a flat 22% of federal income tax on supplemental wages (an optional method; some employers use the aggregate method instead), and must withhold 37% on any supplemental wages above $1,000,000 paid to you in the calendar year (Publication 15).

That 22% is a withholding rate, not a tax rate. If your household’s taxable income already sits in the 35% or 37% bracket, every vested dollar is taxed at 35% or 37% when you file. The difference, 13 to 15 cents per dollar, is not collected during the year. With four quarterly vests, it builds quietly until the return is prepared.

Two other details make the gap larger for dual-income couples:

Each employer withholds as if it were your only employer. Neither one knows that the other salary has already filled the lower brackets.
Additional Medicare Tax is withheld per employer above $200,000, but owed on combined wages above $250,000. Two salaries of $350,000 and $450,000 can leave a small Medicare balance on their own.

California: 10.23% supplemental withholding, SDI with no cap, no capital gains rate

California’s flat supplemental withholding rate for bonuses and stock options is 10.23% for 2026 (EDD California Employer’s Guide, DE 44, 2026). The guide does not name RSUs, so check the rate on your vest confirmation (the example assumes 10.23%). As with the federal rate, it is a withholding shortcut, not your rate.

Brackets. California has not published its 2026 brackets yet, so we use 2025. For a joint return in 2025, 10.3% applies from $742,958 of taxable income, 11.3% from $891,542, and 12.3% above $1,485,906 (FTB 2025 rate schedules).
The extra 1%. California adds a 1% Behavioral Health Services Tax on taxable income above $1,000,000, and the threshold is the same for joint filers. That is how the top rate reaches 13.3% (FTB Form 540 booklet). A large vest can be the thing that pushes a household over $1,000,000.
SDI. State Disability Insurance is withheld at 1.3% of all wages for 2026, with no wage cap since 2024 (EDD). On a $400,000 vest, that is $5,200.
No capital gains rate. California taxes capital gains as ordinary income (FTB). Holding shares for a year after vest lowers the federal rate on the growth, but not the California rate.

Washington: no tax at vest, a capital gains tax when you sell

Washington has no individual income tax in 2026, so the vest itself carries no state income tax (WA DOR). Two things still apply:

WA Cares. The long-term care premium is 0.58% of gross wages with no cap, and vest income counts as wages (WA Cares Fund).
Capital gains tax at sale. Washington taxes long-term capital gains on assets such as stock at 7%, rising to 9.9% on the portion of taxable gains above $1,000,000, from 2025 (WA DOR). There is a standard deduction of $278,000 per individual or married couple for 2025, the latest amount published (WA DOR). Only gains on shares held longer than a year are in scope, and only the growth after vest counts, because the vest value is your basis.

One change matters for planning. Washington enacted a 9.9% income tax on individuals and joint filers with adjusted gross income over $1,000,000, starting January 1, 2028 (WA DOR). How it will treat RSU income is still waiting on guidance, but a Seattle household with seven-figure income should not assume vests stay state-tax-free past 2027.

Sell-to-cover, same-day sale and withhold-to-cover

Your plan decides how the withholding is paid. The three common methods:

Sell-to-cover. The broker sells just enough shares at vest to pay the withholding, and you keep the rest. It is a common default. See our sell-to-cover guide.
Same-day sale. All vested shares are sold, withholding is paid, and you receive cash. Useful when you already own enough company stock. Compare the two in sell-to-cover vs same-day sale.
Withhold-to-cover (net settlement). The company keeps some shares and pays the withholding from its own cash. The tax result is the same as sell-to-cover.

None of these methods changes how much tax you owe. They only change how the withholding is paid. If withholding is 22% and your bracket is 37%, every method leaves the same gap.

Cost basis: the $0 on your 1099-B and how not to pay twice

When you sell vested shares, your broker issues a Form 1099-B. For shares from equity plans, the basis box often shows $0 or is left blank, because the broker does not count the income already reported on your W-2. If your return uses that number, you pay tax on the full sale price, including value you were already taxed on at vest.

The fix is on Form 8949. Enter code B and correct the basis to the fair market value at vest (usually listed on your broker’s supplemental statement), either directly or as an adjustment, depending on which box the sale is reported under (Instructions for Form 8949). Good tax software and preparers do this when they are given the supplemental statement. The problem usually comes from importing the 1099-B without it.

Worked example: a $400,000 vest in Cupertino vs Seattle

Assumptions, labelled so you can swap in your own: a married couple filing jointly with two children under 12. One spouse earns a $450,000 salary and receives a $400,000 RSU vest from the same employer in 2026; the other earns $350,000. Total wages are $1,200,000. We use the 2026 federal standard deduction of $32,200, so federal taxable income is $767,800 before the vest. For California we assume $780,000 of state taxable income before the vest and use 2025 brackets. The employer withholds using the 22% flat method, and the vesting spouse’s supplemental wages stay under $1,000,000 for the year. Neither spouse holds an approved WA Cares exemption. AMT, other income and itemized deductions are ignored.

Tax on the $400,000 vest	Owed	Withheld	Gap: Cupertino, CA	Gap: Seattle, WA
Federal income tax ($900 at 35%, $399,100 at 37%)	$147,982	$88,000 (22%)	$59,982	$59,982
Social Security (salary already above $184,500)	$0	$0	$0	$0
Medicare 1.45%	$5,800	$5,800	$0	$0
Additional Medicare 0.9%	$3,600	$3,600	$0	$0
California income tax (10.3%, 11.3%, plus 1% over $1M)	$45,885	$40,920 (10.23%)	$4,965	not applicable
California SDI 1.3%	$5,200	$5,200	$0	not applicable
WA Cares 0.58%	$2,320	$2,320	not applicable	$0
Total tax on the vest			$208,467	$159,702
Total withheld at vest			$143,520	$99,720
Balance due in April			$64,947	$59,982

What the table shows:

The federal gap is the same in both cities, about $60,000. It comes from 22% withholding against a 37% bracket.
California’s 10.23% withholding is close to the state tax on this vest, but the 1% tax above $1,000,000 adds about $5,000 more. At a larger vest or higher salaries, the California gap grows.
The Cupertino family keeps $191,533 of the $400,000, or about 48%. The Seattle family keeps $240,298, about 60%.

Now the sale. With sell-to-cover in California, 35.88% of the vest is withheld ($143,520), so about 718 of 2,000 shares at $200 are sold and 1,282 are kept. Their basis is $256,400. If the family sells them 14 months later at $240, the true gain is $51,280. If the 1099-B shows $0 basis and nobody corrects it, the return reports a $307,680 gain. At the top federal long-term rate of 20% (which applies above $613,700 of taxable income on a 2026 joint return) plus the 3.8% Net Investment Income Tax, that mistake alone costs $61,023 of extra federal tax, before California (Rev. Proc. 2025-32, IRS NIIT). In Seattle, less is withheld, so about 1,501 shares are kept and the true gain is about $60,040, under Washington’s $278,000 standard deduction (2025 amount) unless the family has other long-term gains that year.

How to cover the April gap

You have three practical ways to close it, and most families combine them:

Estimated payments. To avoid an underpayment penalty, households with 2025 adjusted gross income over $150,000 generally need 2026 withholding and estimates to reach the smaller of 90% of 2026 tax or 110% of 2025 tax (IRS Publication 505, 2026). A big jump in vest value is exactly when the 110% rule helps, because it is based on last year. California is stricter: for 2026, a household with California adjusted gross income of $1,000,000 or more must base its California estimates on 2026 tax, not last year’s (FTB 2026 Form 540-ES instructions). The Cupertino family is over that line.
More withholding on salary. An extra amount on line 4(c) of the Form W-4 (and the California DE 4) spreads the cost across paychecks.
A cash reserve at vest. Move the estimated gap, in this example about $65,000, into a separate account the day shares vest, so the money is not spent or invested by April.

If more was withheld than you owe, for example from the mandatory 37% rate when your top bracket was lower, the excess comes back as a refund when you file. Our guide to claiming an RSU excess refund covers that case.

Keep, sell or redirect: the college, house and concentration decision

Once the tax is paid, a vested share is simply stock you own. The most useful question is: would you buy this stock with cash today? If the answer is no, keeping shares is the same as choosing to buy them. For a family whose salary, unvested grants and savings all depend on one employer, a large single-stock position means one company’s bad year can hit income and net worth at the same time. It helps to write down what share of your net worth you are willing to hold in your employer’s stock, and to review that number once a year rather than at every vest.

Selling at vest usually costs little extra tax, because the basis equals the vest price. That makes vest day the natural moment to redirect money toward the goals that matter for young children:

529 plans. For 2026, each parent can give $19,000 per child without using lifetime exemption, or front-load up to $95,000 per child ($190,000 for a couple) using the five-year election on Form 709 (Form 709 instructions). California gives no state deduction for 529 contributions, but growth used for qualified education is free of California tax.
Custodial accounts. A UTMA account holds money for a child with no contribution limit, but it becomes the child’s at 18 to 21 in California (up to 25 when set up by will or trust) and 18 or 21 in Washington, extendable to 25 when the custodian is first named, and a child under 18 generally pays tax at the parents’ rate on unearned income above $2,700 for 2026 (the kiddie tax).
A house fund or cash reserve. Money for a down payment in the next few years generally does not belong in a single stock.

Our page for Apple families walks through how this plays out on a common Cupertino vest schedule.

Common mistakes with RSU taxes

Treating withholding as the tax. At the 35% and 37% brackets, 22% withholding almost always leaves a balance due.
Filing an 83(b) for RSUs. It does not apply. RSUs are taxed as wages when shares are delivered.
Reporting a $0 basis at sale. Always use the supplemental statement and correct the basis on Form 8949.
Holding for long-term treatment in California. The federal rate on growth falls after a year, but California taxes the gain at ordinary rates either way.
Assuming Washington is tax-free forever. Long-term gains above the standard deduction are taxed now, and income above $1,000,000 is scheduled to be taxed from 2028.
Letting vests pile up by default. A position that grows because nobody decided to sell is still a decision.

What to document for your kids

Your children will not see your vest schedule. They will see the house, the college account and whatever stock is left. What they will not see is why you kept some shares and sold others, how you decided what was enough, and what you chose to put toward their education. A one-page note after each year’s vests (what vested, what you sold, what you kept and why) becomes part of the FamilyKnowledge® Library that Age Five Family Office™ families keep for their children to read later. As Kevin Luu puts it, “Strategic tax optimization is stewardship.” The families who keep wealth across generations, in his words, treat tax decisions as “one more documented decision in the family’s knowledge library.”

Questions families ask about RSU taxes

Are RSUs included in my W-2?

Yes. The value of shares delivered during the year is included in wages on your W-2 (box 1 for income tax, box 5 for Medicare, and box 3 up to the Social Security wage base), and the tax withheld at vest is included with your other withholding. You do not report vest income separately. Some employers also list the RSU amount in box 14 for reference.

How are RSUs different from stock options?

RSUs deliver shares with no purchase price, so they always have value if the stock is above zero, and they are taxed when shares are delivered. Stock options give you the right to buy at a fixed price. Nonqualified options are taxed when you exercise; incentive stock options can trigger AMT at exercise and follow separate holding-period rules. With RSUs, you do not choose when the tax happens.

Is there an RSU tax calculator?

The IRS Tax Withholding Estimator works well if you add expected vest income as wages. The quick version: multiply each upcoming vest by your top federal bracket minus 22%, add your state difference, and that is roughly what to set aside or pay in estimates.

Next step

Pull your 2026 vest schedule and last year’s return, and estimate this year’s gap with the table above. Our tax management page explains how vest planning fits the rest of a family’s tax picture, and the Tax & Wealth Assessment is there if you want a second set of eyes on the numbers. This is general education, and the right move depends on your family’s full picture.

How RSUs Are Taxed in California and Washington: Withholding, Cost Basis and the April Surprise