RSU Tax Calculator

RSUs are taxed as ordinary income when they vest. The fair market value of the shares on the vesting date is added to your W-2 income and subject to federal income tax, state income tax, Social Security tax (up to the wage base), and Medicare tax. If the total vesting value is large, the additional 0.9% Medicare surtax may also apply. Any gain or loss after vesting is treated as a capital gain or loss when you eventually sell the shares.

Most employers withhold a flat 22% for federal tax on RSU income (37% for amounts over $1 million). If your marginal tax rate is higher than 22%, the withholding is not enough to cover your actual liability. This creates a withholding gap that results in a tax bill when you file your return. State taxes, the additional Medicare surtax, and the loss of deductions or credits due to higher AGI can widen the gap further.

Sell-to-cover is the most common method employers use to handle RSU tax withholding. When your RSUs vest, the company automatically sells enough shares to cover the estimated tax withholding and delivers the remaining shares to you. For example, if 100 shares vest and the withholding requirement is 40%, approximately 40 shares are sold and you receive 60 shares. The exact number depends on the share price and the combined federal, state, and FICA withholding rates.

A Section 83(b) election allows you to pay tax on restricted stock awards (RSAs) at the time of grant rather than at vesting. You must file the election with the IRS within 30 days of the grant date. If the stock price increases between grant and vesting, you pay tax on the lower grant-date value and any subsequent appreciation is taxed as a capital gain. However, if the stock price drops or you forfeit the shares, you cannot recover the tax already paid. The 83(b) election applies to RSAs, not to RSUs.

Yes, RSU income is subject to Social Security tax (6.2%) up to the annual wage base ($176,100 for 2025). If your regular salary already exceeds the wage base before your RSUs vest, no additional Social Security tax applies to the RSU income. If your salary is below the wage base, RSU income will be taxed for Social Security until the combined total reaches the cap. Medicare tax (1.45%) applies to all RSU income with no cap, and the additional 0.9% Medicare surtax applies to earnings above $200,000 for single filers or $250,000 for married filing jointly.

There is no way to avoid ordinary income tax on RSU vesting, but you can manage the impact. Strategies include maximizing pre-tax 401(k) contributions to lower your taxable income, donating appreciated shares to charity to avoid capital gains, harvesting capital losses to offset gains from selling vested shares, timing share sales to qualify for long-term capital gains rates (hold for more than one year after vesting), and contributing to an HSA if eligible. For RSAs specifically, a Section 83(b) election can shift the tax event to the grant date when the value may be lower.