%2075-100%20(4).png)
Here is how RSUs are taxed in 2026. When restricted stock units vest and the shares are delivered, their fair market value that day is ordinary wage income, reported on your Form W-2 and subject to income tax, Social Security and Medicare. When you later sell the shares, only the change in price after vesting is a capital gain or loss.
Knowing how RSUs are taxed matters most in the year of a large vest. Employers usually withhold federal income tax at the flat 22% supplemental rate, which can fall well short of a high earner's actual bracket, and brokers often report a cost basis on Form 1099-B that leaves out the income already taxed on the W-2. This guide covers each step with 2026 IRS figures, a worked example and the reporting fixes that keep you from paying tax twice.
A restricted stock unit is a promise from your employer to deliver shares (or occasionally cash) once you meet a vesting condition, usually continued service over several years. You own nothing at grant. The IRS describes RSUs in its Equity (Stock) Based Compensation Audit Technique Guide as "unsecured, unfunded promises to pay cash or stock in the future," treated as nonqualified deferred compensation.
That status explains most of the rules below. RSUs "generally are not taxable at grant," and a taxable event normally occurs at vesting, when the shares are actually transferred to you. If your plan delays delivery past the vesting date, income tax generally follows the delivery date, while Social Security and Medicare can still attach at vesting under the special timing rule for deferred compensation in section 3121(v)(2).
On the employer side, the same award runs through the income statement as stock compensation expense under GAAP. If you work on the company's books, our guide to ASC 718 stock-based compensation accounting explains how the expense and the tax deduction differ.
At vesting and delivery, the fair market value of the shares is compensation. Your employer adds it to box 1 of your Form W-2 alongside salary and bonus, and it is taxed at your ordinary income rates. No special equity rate applies.
Because the income stacks on top of your salary, it is taxed at your highest marginal rates. For 2026, Rev. Proc. 2025-32 sets these brackets for single filers:
| 2026 taxable income (single) | Rate on that slice |
|---|---|
| Up to $12,400 | 10% |
| $12,400 to $50,400 | 12% |
| $50,400 to $105,700 | 22% |
| $105,700 to $201,775 | 24% |
| $201,775 to $256,225 | 32% |
| $256,225 to $640,600 | 35% |
| Over $640,600 | 37% |
The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. The One Big Beautiful Bill Act (P.L. 119-21) made the current rate structure permanent, so these brackets will keep being indexed for inflation each year instead of reverting to the older, higher rates.
Vesting creates taxable income whether or not you sell a single share, so keeping the shares after delivery leaves the wage income in that year's return.
RSU income counts as supplemental wages for withholding. IRS Publication 15 (2026) confirms that "the withholding rate on supplemental wages remains 22% (37% if supplemental wages paid to an employee during the calendar year exceed $1 million)" because P.L. 119-21 extended the current rates. The 37% rate is mandatory on the portion of supplemental wages above $1 million in the year, whatever your Form W-4 says. Our explainer on supplemental wages and the supplemental tax rate covers the aggregate method employers can use instead.
Most companies collect the tax through one of these settlement methods:
The problem is the gap between 22% and your real rate. A single filer with taxable income above $201,775 is in the 32% bracket, so every dollar of RSU income withheld at 22% leaves about 10 cents unpaid. To close it, raise the withholding on your regular paychecks through Form W-4 or make quarterly estimated tax payments after each vest. As general guidance, paying in at least the safe-harbor amounts avoids an underpayment penalty even if you still owe a balance in April.
RSU income is also subject to FICA. Publication 15 sets the 2026 rates as follows: Social Security at 6.2% on wages up to the $184,500 wage base, and Medicare at 1.45% with no cap. Employers must also withhold the 0.9% Additional Medicare Tax "from wages you pay to an employee in excess of $200,000 in a calendar year."
If your salary alone reaches $184,500 before a vest, the RSU income carries no Social Security tax at all, only Medicare. A vest early in the year, before salary has filled the wage base, pays the full 6.2% on whatever room remains. If you change employers mid-year, each employer withholds Social Security up to $184,500 separately, and you claim the excess as a credit on your return.
The Additional Medicare Tax threshold for withholding is $200,000 regardless of filing status. Your actual liability uses $250,000 for married couples filing jointly, so a two-earner household can end up owing more or less than was withheld.
Once the shares are yours, they are ordinary investment property. Your basis is the value you already reported as income. IRS Publication 550 states the rule for property received for services: "The amount you include in income then becomes your basis in the property."
The holding period starts the day after the shares are delivered. Publication 550 says to "begin counting on the date after the day you acquired the property," and a holding of more than one year produces a long-term gain or loss. For 2026, long-term gains are taxed at 0% up to $49,450 of taxable income for single filers ($98,900 joint), 15% up to $545,500 ($613,700 joint) and 20% above that, per Rev. Proc. 2025-32. Short-term gains are taxed at ordinary rates.
Two other rules often apply to RSU holders. High earners may owe the 3.8% net investment income tax on the gain once modified AGI passes $200,000 (single) or $250,000 (joint). And selling RSU shares at a loss within 30 days before or after another vest can trigger the wash sale rule, because the new vest is an acquisition of the same stock.
This is where most RSU reporting errors happen. Your W-2 already includes the vest-day value in wages. When you sell, the broker issues a Form 1099-B, and the basis in box 1e may be zero, blank or lower than your vest-day value, especially for older lots, transferred accounts or shares the broker treats as noncovered. Reporting that figure as-is taxes the same income a second time as a capital gain.
The Instructions for Form 8949 give the fix. Use adjustment code B when "the basis shown in box 1e on Form 1099-B ... is incorrect." Where the basis was reported to the IRS, you "enter the basis shown on Form 1099-B" in column (e) and "correct the error by entering an adjustment in column (g)." Where basis was not reported to the IRS, you enter the correct basis directly in column (e) and -0- in column (g). Our walk-through of Schedule D and Form 8949 shows the full form flow.
The supplemental statement your plan administrator issues with the 1099-B typically lists the vest-day price and adjusted basis for each lot. Cross-check it against your W-2 before filing.
Founders who receive restricted stock often file an 83(b) election to be taxed at grant on a low value. RSU holders cannot. Treasury Regulation 1.83-3(e) excludes "an unfunded and unsecured promise to pay money or property in the future" from the definition of property, and Publication 5992 states that "an IRC § 83(b) election cannot be made with respect to the grant of a Restricted Stock Unit."
Section 83(i) is the one deferral tool written for RSUs. IRS Publication 525 explains that qualified employees of private corporations can "elect to defer income taxation for up to 5 years from the date of vesting" on stock from RSUs settled after 2017. The company must have a written plan granting RSUs or options to at least 80% of its U.S. employees, and 1% owners, the CEO, the CFO and the four highest-paid officers are excluded. The election is due no later than 30 days after the stock becomes transferable or substantially vested, whichever is earlier.
The deferral covers income tax only. The 2026 Form W-2 instructions state that "social security and Medicare taxation of the deferral stock is not affected by these rules," and the deferred amount shows in box 12 with code GG when it is included and code HH for aggregate deferrals. When the deferral ends, the employer must withhold at the maximum rate. See our note on new Form W-2 box 12 codes for how these appear on the form. Few companies offer 83(i), and an employee who expects a large gain on private-company shares should also check whether the stock qualifies for the QSBS exclusion on a later sale.
States tax RSU income as wages, and moving between grant and vest can split that income between states. California's approach in FTB Publication 1004 is a common model. A California resident on the vesting date is taxed on the full wage income. A nonresident is taxed "to the extent services were performed in California from the grant date to the vesting date," using the ratio of California workdays to total workdays in that period. Your former or new home state may also tax the same income, so a credit for taxes paid to another state is often needed to avoid double taxation.
Check the state wages on your W-2 against your own workday records. Teams with remote or traveling employees face the same issue on the employer side; our guide to tax planning for remote and hybrid workforces covers withholding across states. The later capital gain on a sale is generally taxed by your state of residence when you sell.
The figures below are illustrative. A single filer in a state with no income tax earns a $170,000 salary in 2026. In March, 1,000 RSUs vest at $90 a share.
Vesting income and withholding
The federal income tax gap
The sale
In December, the employee sells all 749 shares at $100. Proceeds are $74,900 and the basis is 749 x $90 = $67,410, so the short-term gain is $7,490. At the 32% bracket that adds $2,396.80 of income tax, plus $284.62 of net investment income tax (3.8% of $7,490).
The cost-basis error
If the 1099-B showed a $0 basis and the employee reported it unchanged, the reported gain would be $74,900. Federal income tax on the sale would rise to $25,845.25, about $23,448 more than the correct amount, and the net investment income tax would rise by $2,561.58. A code B adjustment on Form 8949 prevents the overpayment.
How are RSUs taxed in simple terms? The vest-day value is ordinary wage income on your W-2, subject to income tax and FICA. When you sell, the difference between the sale price and that vest-day value is a capital gain or loss, short term if held one year or less after delivery.
Is the 22% RSU withholding enough? Often it is short. The 22% supplemental rate matches only the 22% bracket, so anyone whose taxable income reaches the 24%, 32%, 35% or 37% brackets will owe more at filing unless they increase W-4 withholding on salary or make estimated payments.
Are RSUs taxed twice? The same dollars should be taxed once. The vest-day value is taxed as wages and only later appreciation is taxed as a gain. Double taxation happens when a 1099-B shows a basis that is too low and the error is not corrected on Form 8949.
Can I file an 83(b) election on RSUs? No. RSUs are an unfunded promise rather than property under section 83, so the IRS position is that an 83(b) election cannot be made at grant. Employees of eligible private companies may instead be able to use a section 83(i) deferral.
Do RSUs count toward the Social Security wage base? Yes. RSU income is FICA wages, so it fills the 2026 Social Security wage base of $184,500. Once total wages from one employer pass that amount, further RSU income bears only Medicare tax and, above $200,000, the Additional Medicare Tax.
Which state taxes my RSUs if I moved? Usually both states can claim a share. Many states, including California, allocate RSU wage income by workdays spent in the state between grant and vest, and your resident state may tax the full amount with a credit for tax paid elsewhere.
This article is general information on federal and state rules as of October 2026 and is not tax advice for a specific situation.
Madras Accountancy supports individuals, startups and CPA firms with tax preparation, bookkeeping and payroll reporting for equity compensation, including reconciling W-2 equity income with brokerage statements and correcting cost basis before returns are filed. Our startup tax planning and preparation services also cover company-side equity reporting. To discuss your RSU reporting, contact our team.
The section 4960 excise tax is 21% of nonprofit pay over $1M. From 2026 it covers all employees. See the medical carve-outs, Form 4720 and a worked example.
The paid family and medical leave tax credit is permanent from 2026. See the 12.5% to 25% rates, the premium option, the 6-month rule and how Form 8994 works.
Opportunity zones become permanent in 2027 under the One Big Beautiful Bill. See the new deferral, rural bonus, and the 2026 handoff.
