RSU Tax Planning Guide 2026

Restricted stock units are the most common form of equity compensation for mid-to-senior tech and corporate executives — and among the most consistently under-withheld. If you're vesting $150K+ in RSUs this year on top of a $300K+ salary, your employer is likely sending the IRS 22 cents on every dollar while you actually owe 35–37 cents. The gap lands as a surprise tax bill in April.

How RSUs are taxed

RSUs are straightforward in structure but expensive in execution. When shares vest, the full market value on the vesting date is recognized as ordinary W-2 income — taxed at your marginal federal rate, subject to FICA (Social Security + Medicare), and fully taxable in most states.¹

After vesting, your cost basis is the FMV on the vest date. From that point forward:

• Sell within 12 months of vest → short-term capital gain (ordinary income rates)
• Hold at least 12 months after vest → long-term capital gain (0%, 15%, or 20%; plus 3.8% NIIT if income exceeds $250,000 MFJ)

The 22% withholding gap

Under IRS Publication 15 (Circular E), employers apply a flat 22% supplemental withholding rate to RSU vests up to $1,000,000 in cumulative supplemental wages per year (37% above $1M).²

The problem: anyone with total W-2 income above roughly $105,700 (single) or $211,400 (MFJ) is in the 24% federal bracket or higher. For executives in the 32–37% bracket, the 22% withholding rate leaves a systematic gap that compounds year after year.

Source: 2026 bracket thresholds per Tax Foundation / IRS Rev. Proc. 2025-32. Gap is federal only; state taxes add additional shortfall.

RSU Tax Withholding Gap Calculator

Estimate the gap between what your employer withholds and what you actually owe on this year's RSU vesting:

Uses 2026 brackets per IRS Rev. Proc. 2025-32 and Tax Foundation. Excludes FICA (already capped at $168,600 wage base). Not a substitute for tax advice.

5 strategies to reduce RSU taxes

1. Fix the withholding gap before April

The easiest fix is adjusting your W-4 to withhold extra federal tax on your regular paychecks. Request "additional withholding per pay period" equal to (estimated shortfall) ÷ (remaining pay periods this year). Alternatively, make quarterly estimated tax payments directly to the IRS by January 15, April 15, June 16, and September 15. The safe harbor for HNW taxpayers (AGI > $150K) is 110% of prior-year tax liability — pay that amount in estimated taxes and you avoid the underpayment penalty regardless of the final bill.³

2. Sell to diversify, not just to cover

The instinct after a vest is "sell enough to cover taxes, hold the rest." For an executive who already holds 40% of net worth in company stock across vested shares, unvested awards, and options, this concentrates risk further. A better default: sell the entire vest immediately (all shares = ordinary income, already recognized) and reinvest the after-tax proceeds in a diversified portfolio. This eliminates concentration risk without triggering additional capital gains — you're selling at your cost basis.

3. Donate appreciated shares post-vest to a DAF

If you've held vested RSU shares for more than 12 months and they've appreciated, donating those shares directly to a donor-advised fund eliminates the capital gains entirely and delivers a charitable deduction at the full current market value (up to 30% of AGI for appreciated property).⁴ For executives making significant charitable gifts anyway, this replaces a taxable sale + cash donation with a non-taxable transfer — saving 23.8% on the embedded gain.

4. Use tax-loss harvesting to offset the ordinary income hit

RSU ordinary income is not offset by capital losses directly — you can only use capital losses against capital gains, plus up to $3,000/year against ordinary income.⁵ However, for a $10M+ taxable account using direct indexing, systematic tax-loss harvesting generates capital losses that offset capital gains elsewhere in the portfolio — effectively freeing up room to rebalance or diversify without a net capital-gain tax cost. This doesn't reduce the RSU ordinary income tax, but it reduces the total tax bill in the same year.

5. Use a 10b5-1 plan for systematic post-vest sales (insiders only)

If you're a corporate insider subject to trading blackout windows, a Rule 10b5-1 plan lets you pre-schedule RSU sales during window periods — including same-day sales at vest, sell-to-cover arrangements, or a scheduled diversification program. The plan must be adopted at least 90 days before the first trade (120 days for officers and directors under the 2023 amended rules).⁴ Plans adopted when you're not in possession of material non-public information give you safe harbor for the trades when they execute — even if MNPI surfaces later.

RSU cost basis and holding period: common mistakes

State tax traps for RSU income

California taxes RSU income at the time of vesting regardless of whether you lived in California during the vesting period.⁵ If you lived in California during any part of the vesting schedule, California FTB will attempt to allocate a share of the vest income to California — even if you've since moved to Texas or Florida. The allocation is based on the ratio of California working days to total working days over the full vesting period.

New York takes a similar approach for employees who worked in New York during the vesting schedule. If you leave New York and vest shares after departure, NY may still tax a portion based on the employment period that generated the award.

This means domicile changes must be planned carefully relative to vest schedules — not just after. A $1M RSU vest in year 3 of a 4-year schedule started in California will result in 75% of the vest income being California-source regardless of where you live at vesting.