RSU Taxes: Vesting, W-2 Income and Cost Basis When You Sell

The short answer

A restricted stock unit (RSU) is a promise from your employer to give you shares (or cash) later, usually after you meet a vesting schedule. RSUs are generally not taxed when granted. When stock-settled RSUs are delivered to you, the value of the shares is compensation income — usually included in your W-2 wages. That value becomes your cost basis in the shares. When you later sell, only the change in value after delivery is a capital gain or loss.

The most common mistake is paying tax twice: Form 1099-B often shows a basis of $0 or too low a basis for RSU shares, and you must correct it on Form 8949.

Grant, vesting, and settlement

The IRS audit technique guide says stock-settled RSUs are subject to section 83 only when the stock is actually transferred to you. If your plan delivers shares later than vesting, the timing follows the plan and the deferred compensation rules — check your plan documents and W-2. Social Security and Medicare taxes on RSUs can follow a special timing rule (section 3121(v)(2)), which your employer applies through payroll.

Withholding: why you may still owe tax

RSU income is generally treated as supplemental wages. Under Publication 15 (2026), employers may withhold federal income tax on supplemental wages at a flat 22%, and must withhold 37% on supplemental wages above $1 million for the year. If your actual tax rate is higher than 22%, the withholding may not cover your tax. Many employers withhold shares (or sell some shares) to cover the withholding. Consider adjusting your W-4 or making estimated tax payments — see why you may owe at filing time.

Cost basis and holding period

• Basis: generally the value included in your income when the shares were delivered (plus anything you paid).
• Holding period: starts when you receive the shares. Selling one year or less after that gives a short-term gain or loss; more than one year gives a long-term gain or loss.
• Broker reporting: for awards granted after 2013, the basis on Form 1099-B won't include the compensation income. The 2026 Form 1099-B instructions say a broker cannot increase initial basis for income recognized on the vesting or exercise of equity-based compensation.

Example (illustrative, 2025)

Lin's 100 RSUs vest and are delivered on March 3, 2025, when the stock is worth $150 a share. Her employer withholds 22% for federal income tax by keeping 22 shares.

Under the Form 1099-B instructions, brokers may not add the wage income from RSUs granted after 2013 to the reported basis, so the basis shown is often $0. If her Form 1099-B shows a $0 basis reported to the IRS (Form 8949 Part I, box A), using it unchanged would report a $12,480 gain — taxing the $11,700 she already paid tax on as wages a second time. She enters $0 in column (e), code B in column (f), and an adjustment of ($11,700) in column (g), using the Worksheet for Basis Adjustments in the Form 8949 instructions, so her reported gain is $780. The ($11,700) figure applies only because the reported basis is $11,700 too low: if the reported basis were a different amount, the adjustment is the difference between that amount and $11,700, and if it already showed $11,700, no adjustment is needed. If the broker did not report the basis to the IRS (box B), she instead enters $11,700 in column (e), code B in column (f), and -0- in column (g).

Section 83(i): deferral for some private-company employees

Publication 525 explains that "qualified employees" of private corporations with a written plan that offers RSUs or options to at least 80% of U.S. employees may elect under section 83(i) to defer income on "qualified stock" for up to 5 years after vesting. Excluded employees include 1% owners, current or former CEOs and CFOs and their families, and the four highest compensated officers. The election must be made within 30 days after the stock first becomes transferable or not subject to a substantial risk of forfeiture, follows Notice 2018-97, and cannot be made on Form 15620. Withholding applies at the highest rate. This is rare for public-company employees.

Common mistakes

• Using a $0 basis from Form 1099-B and paying tax twice.
• Assuming 22% withholding covers your tax. It may not if your rate is higher.
• Counting the holding period from the grant date. It starts when you receive the shares.
• Trying to make a section 83(b) election for RSUs. It is not available because no property is transferred at grant.
• Assuming every RSU is taxed on the vesting date. The taxable event is generally delivery of the shares; deferred-settlement plans can differ.

Forms you will see