For the first time, the figure on the screen is large enough to change something real. A home, a decision about work, a different kind of freedom. The question most people don't think to ask early enough is how much of that figure is actually theirs to keep.

RSU income is the value of your shares on the day they vest, taxed as ordinary income. Understanding how it works is the difference between the amount you see and the amount you keep.

Key takeaways

• RSU income is the value of your vested shares, taxed as ordinary income the day they vest, not the day you sell.

• It's added to your W-2 wages, which is why equity can look like it's taxed twice when you don't know where to check.

• A second, separate tax event arrives later: capital gains or losses on the change in value between vesting and selling.

• Standard withholding often falls short of what higher earners actually owe, which becomes a surprise at filing.

• The decisions that shape your tax bill happen before vesting and before you sell, not in April.

What is an RSU?

A restricted stock unit (RSU) is a form of equity compensation: company shares granted to you that become yours once they vest, usually after a set period with the company. RSU stands for restricted stock unit, and the restricted part is the point. The shares are committed to you, but they aren't yours until you've met the conditions.

There's a useful distinction hiding in that. Unlike stock options, there is nothing to buy. A grant is a promise –– vesting is the moment that promise becomes shares you own outright. Most people blur the two together, and that's where the tax confusion begins, because the moment the shares become yours is also the moment they start to count as income.

How do RSUs work? Vesting, explained

An RSU moves through three dates, and only one of them is taxable.

• Grant date. You learn how many units are coming and over what period. Nothing is taxed yet.

• Vesting date. The units become real shares. This is when the value reaches you, and when it becomes income.

• Sale date. Whenever you decide to sell, a second and separate tax question opens.

Most grants vest gradually over several years, sometimes after an initial cliff. It's worth reading your own schedule closely, because every vesting date is a taxable moment whether or not you sell a single share.

What is RSU income, and when are you taxed?

RSU income is taxed as ordinary income at vesting, valued at the share price that day, and then taxed again at sale as a capital gain or loss, but only on the change in value since vesting. At vesting, that value joins your salary on your W-2. At sale, only the growth (or decline) since vesting is taxed.

Say you have 10,000 shares that vest at $80. That's $800,000 of ordinary income for the year, taxed at the same rates as the rest of your pay, whether or not you sell. If you later sell at $95, the first $80 a share was already taxed as income, so only the $15 of growth, $150,000, is a capital gain. (Figures are illustrative.)

Why RSU income on your W-2 can look like double taxation

RSUs are not taxed twice, even though a 1099-B can make it look that way. The income is taxed once, at vesting, and reported on your W-2. The appearance of a second tax comes from how the sale is later reported.

When you sell, your brokerage files a 1099-B, and it will sometimes show a cost basis of zero, as if the shares had cost you nothing, when you already paid full ordinary income tax on them at vesting. Left uncorrected, the same income is taxed a second time.

The fix is a single line. Confirm that the cost basis on your 1099-B reflects what the shares were worth when they vested, and correct it on Form 8949 if it doesn't. It's one of the most common and most expensive equity errors, and one of the easiest to avoid once you know where to look.

How RSU withholding works, and why it often falls short

When your shares vest, your employer usually withholds tax at a flat supplemental rate. For a higher earner, that rate often sits below the bracket the income actually lands in, which means the withholding covers some of what you owe, not all of it.

A quick example shows the gap. Say $800,000 vests in a year. Your employer withholds federal tax at the standard supplemental rate of 22%, about $176,000. 

But this income stacks on top of a salary that may already be high, so much of it is taxed at your marginal rate, which for a higher earner often falls between 32% and 37%. 

At roughly 35%, the actual federal tax on that $800,000 is closer to $280,000. That leaves about $104,000 still owed, due when you file your return. (Figures are illustrative and exclude state tax, which can widen the gap further.)

This is also why planning ahead can be so valuable, and can make a real difference in how much of your equity stays yours after tax.

When should you sell your RSUs?

Once your shares vest, a question arrives that carries more weight than it first appears. Keep them, or sell. There's no universal answer, because the right one depends on a life rather than a formula.

There's concentration, where vested shares can tie a large part of your net worth to one company, often the same one that signs your paycheck. 

And there's timing, where the tax-smart moment to sell and the investment-smart moment to sell don't always agree.

Beneath both runs something the numbers don't measure. These shares represent years of work and a real commitment to a company you believed in, and the hardest part is often separating that feeling from the financial decision that best fits your situation.

Selling at vesting resets the clock and loosens that concentration. Keeping the shares is a conviction bet on the company. Both are defensible. What matters is that the decision is yours, made deliberately, with a clear view of what you're weighing.

Planning around RSU income

The reason equity can feel like a lot to carry is rarely the equity itself. It's that RSUs touch everything at once: your income, your bracket, your investment mix, the larger decision you've been circling for a year. Move one piece and the others shift.

Most of what helps rewards foresight over hindsight. Timing a sale against the rest of your tax year. Weighing a charitable strategy. Reading the vesting calendar before it arrives rather than reacting after it has. The cost of treating equity as a once-a-year event, instead of a continuous thread through your financial life, tends to be paid slowly, and then all at once.

This is the work a wealth advisor is for. At Arca, your equity is considered alongside your taxes, your long-term goals, and the life you're working toward, so the decisions happen in stride and on your terms.

If equity has become a larger part of your financial life than you expected, start a conversation with our team.

Frequently asked questions

Does an RSU count as income?

Yes. When RSUs vest, their full market value that day is counted as ordinary income and added to your W-2 wages, taxed at the same rates as your salary.

How is RSU income taxed?

RSU income is taxed in two stages. At vesting, the value of the shares is ordinary income. When you later sell, any change in value since vesting is taxed separately as a capital gain or loss.

Why are my RSUs taxed so high?

RSU income is added on top of your salary, which can push it into a higher bracket, and the flat rate your employer withholds is often lower than what you ultimately owe. The result can feel like a high tax, though it's usually a withholding gap rather than a higher rate.

How do I report RSUs on my tax return?

RSU income at vesting is already reported on your W-2. When you sell, the sale appears on a 1099-B. The key step is confirming the cost basis reflects the value taxed at vesting, so the same income isn't taxed twice.

What's the difference between RSUs and stock options?

RSUs are shares granted to you outright once they vest, with nothing to purchase. Stock options give you the right to buy shares at a set price. RSUs carry value as long as the stock has any, while options only have value if the price rises above your strike price.

This article is for educational purposes and is not financial, legal, or tax advice. Arca Wealth, LLC ("Arca Wealth") is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. This is provided for informational purposes only and does not constitute investment advice, a solicitation, or an offer to buy or sell any security or investment product. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

Arca Wealth recommends that prospective and current clients consult their own legal, tax, and accounting advisers before making any financial decisions. Further information can be found at https://arcawealth.com.