RSUs are taxed when they vest. Here’s what that means for April.

Restricted stock units feel like a bonus that arrives in shares. For tax purposes, that’s exactly what they are, and that’s where the surprise comes from.

Vest day is payday

When an RSU vests, the market value of the shares that day is taxed as ordinary income, just like salary. It appears on your W-2. Your employer withholds tax, usually by keeping back some of the shares.

The catch is the rate. Employers typically withhold federal tax on supplemental wages at a flat 22% (37% on supplemental wages above $1 million in a year). If your marginal bracket is 32%, 35% or 37%, each vest leaves a gap between what was withheld and what you owe. Across a year of vests, that gap can easily reach five figures.

After vest, it’s just stock

Once the shares are yours, your cost basis is their value on the vest date. Anything that happens after that is a capital gain or loss:

• Sell right away: little or no additional gain. The tax was already counted at vest.

• Hold for more than a year: further growth is taxed at long-term capital gains rates when you sell.

• Hold and the price falls: you’ve paid income tax on a value you no longer have. The loss can offset other gains, but only $3,000 a year against ordinary income.

Holding vested RSUs is, in effect, choosing to buy your employer’s stock with a cash bonus. Sometimes that’s the right choice. It should be a choice.

Three decisions to make before each vest

1. How much to sell. At minimum, enough to cover the tax the 22% withholding missed. Beyond that, how much of your net worth you want in one company.

2. Whether to top up withholding. You can raise withholding on your salary, or make an estimated payment, so the tax is paid in the year it’s earned.

3. Where the proceeds go. Straight into your diversified portfolio, a cash reserve for April, or a specific goal.

Setting estimates from this year, not last year

Many people avoid underpayment penalties by paying at least as much as last year’s tax (or 110% of it, at higher incomes). That “safe harbor” keeps you penalty-free but doesn’t stop a large April bill. We prefer to calculate estimates from the actual year, vest by vest, so the April number is close to zero.

What we do for clients with RSUs

We read your grant agreements, build a vest-by-vest calendar with the tax on each, and set a sell-and-withhold plan before the first vest. If one company’s stock has grown into a large share of your net worth, we write a schedule to bring it down over time, spreading the gains across tax years and your company’s trading windows.