RSU Vesting Tax Estimator

Detailed results
Estimated employer withholding	$1,840
Shares likely sold to cover	20
Net value after tax	$23,184
Effective tax rate on vest	37%

Estimated employer withholding

$1,840

Shares likely sold to cover

Net value after tax

$23,184

Effective tax rate on vest

37%

What this result means

This vest is worth $36,800 as ordinary income and carries roughly $13,616 of tax. Your employer's flat supplemental withholding falls about $11,776 short, so set that amount aside now — it comes due with your return or as an estimated payment, long after the shares have moved in price.

How this is calculated

gross = shares x price_at_vest tax = gross x (marginal_federal + state) + social_security + medicare shortfall = tax - employer_withholding

RSUs are wages, not stock trades

On the day your restricted stock units vest, the full fair market value of those shares becomes ordinary compensation. It appears in Box 1 of your W-2 alongside salary, and it is subject to income tax plus Social Security and Medicare. Nothing about the transaction resembles a capital gain: you did not buy the shares, so there is no purchase price to subtract. The vest-date value becomes your cost basis for later, and only the movement in price after that day produces a capital gain or loss.

This distinction is the source of nearly every RSU tax surprise. People see "stock" and assume favourable long-term treatment, then discover in April that the entire vest was taxed as salary.

Why withholding usually falls short

Employers do not compute your marginal rate on a vest. They apply a flat statutory supplemental withholding rate to the value, and a second, higher flat rate once your cumulative supplemental wages exceed the annual threshold. That flat rate is convenient for payroll systems, but if your marginal bracket exceeds it, the withholding covers only part of what you owe.

The gap grows with the size of the vest. A modest grant at a middle bracket may be roughly covered. A large vest that pushes you into a top bracket can leave a shortfall running into five figures, payable when you file. The Withholding shortfall figure above is the number worth acting on: either set that cash aside, make an estimated tax payment, or increase withholding on your regular paycheck for the rest of the year.

Sell-to-cover and share counting

Most plans default to sell-to-cover, meaning the broker sells enough vested shares to satisfy withholding and delivers the remainder. The Shares likely sold to cover line estimates that count. Because the sale happens at or near the vest price, it usually generates a negligible capital gain or loss — sometimes a small loss after commissions, which is still reportable.

If your plan instead offers net share settlement, the mechanics differ but the tax result is the same.

Concentration risk sits behind the tax question

Holding vested shares is economically identical to receiving cash and immediately buying your employer's stock. Very few people would choose to put a large fraction of net worth into a single stock that also pays their salary. The tax calculation above tells you what you keep; the harder question is whether you want to keep it in that particular company.

What this estimator will not tell you

It does not run the federal bracket table, apply deductions or credits, model the alternative minimum tax, or handle state-specific rules such as multi-state allocation for shares earned while working in another state. Treat the output as a planning figure that tells you the order of magnitude of the cash you need to reserve, and confirm the final number with a preparer if the vest is large.

Assumptions

RSUs are taxed as ordinary wage income on the vest date at fair market value.

You entered your true marginal federal rate; the calculator does not run the full bracket table.

State tax is applied as a flat rate with no deductions, credits, or local tax.

Statutory FICA rates, wage base, and supplemental withholding rates are placeholders until verified against the cited IRS and SSA sources.

No 83(b) election, deferral plan, or qualified equity election is modelled.

Any gain or loss after the vest date is a separate capital gains event and is not included.

Frequently asked questions

›Are RSUs taxed twice?

No, though it can feel that way. The vest is taxed once as ordinary wage income. If you later sell the shares for more than the vest-date value, only that additional gain is taxed again, as a capital gain.

›Why did my employer withhold less tax than I owe on my RSUs?

Employers apply a flat statutory supplemental withholding rate rather than your personal marginal rate. If your bracket is higher than that flat rate, the difference becomes a shortfall you must pay with your return or through estimated payments.

›What is my cost basis for RSU shares?

Your basis is the fair market value on the vest date, which is the same amount reported as wage income. Brokers sometimes report a basis of zero on Form 1099-B, so check and correct it or you will pay tax twice on the same value.

›Should I sell my RSUs immediately after vesting?

Selling at vest realises the value you were already taxed on with essentially no additional tax consequence, and it removes concentration risk. Holding is a decision to invest in a single stock, which is a separate question from the tax treatment.

›Do RSUs affect my Social Security and Medicare taxes?

Yes. RSU value is wage income, so Social Security applies until your total wages reach the annual wage base, and Medicare applies to the full amount with an additional rate above a threshold for higher earners.

›Can I make an 83(b) election on RSUs?

Generally no. An 83(b) election applies to restricted stock awards, not to restricted stock units, because units are a contractual promise rather than issued property. Some plans permit deferral elections instead.

›How do I avoid an underpayment penalty after a big vest?

Either make an estimated tax payment in the quarter the vest occurs, or increase the withholding on your regular salary for the remainder of the year. Meeting a safe-harbour threshold based on prior-year tax generally avoids the penalty.