The Complete Guide to RSU Taxation for Tech Employees (2026)

RSUs look like free money on paper. In practice, they trigger two separate tax events — one when shares vest, one when you sell — each taxed differently. Most tech employees get the first event wrong and are surprised in April. This guide explains both events, the exact taxes involved, and the common mistakes that cost six figures.

How RSU vesting creates a taxable event

A Restricted Stock Unit is a promise from your employer to deliver shares once a vesting condition is met (usually time, sometimes a performance target). When shares vest and are delivered to you, the IRS treats the fair market value of those shares as ordinary wage income — indistinguishable from your salary, on that day's price.¹

Example: 500 RSUs vest on a day when the stock is $200/share. That's $100,000 of wage income on your W-2, regardless of whether you sell the shares or hold them.

Your employer is required to withhold taxes at vest. What they actually withhold is different from what you owe — and that gap is the source of most tax surprises.

The withholding gap: 22% vs your real rate

By law, employers withhold federal income tax on RSU vests using the 22% flat supplemental rate (or 37% if your cumulative supplemental wages for the year exceed $1M).² If your real marginal federal rate is higher — and for most tech employees it is — you owe the difference in April.

For 2026, the 37% federal bracket kicks in at $640,600 of taxable income for single filers and $768,600 for married filing jointly.³ A software engineer in a high-cost city with base salary, bonus, and a $250K RSU vest year will frequently hit 32–37% federal. The 22% withholding covers less than two-thirds of that.

Use our RSU tax calculator to estimate your specific withholding gap based on your income and state.

FICA: Social Security and Medicare

RSU income is also subject to payroll taxes at vest:

• Social Security: 6.2% on wages up to the wage base — $184,500 in 2026.⁴ If your base salary alone already exceeds $184,500, you owe no additional Social Security on the RSU vest.
• Medicare: 1.45% on all wages, no cap.
• Additional Medicare Tax: 0.9% on wages above $200,000 for single filers ($250,000 married filing jointly).⁵ Your employer withholds this once your wages exceed $200K in a calendar year. If you have a spouse who also has wage income, the true threshold is $250K combined — you may owe more or less than what was withheld when you file.

These FICA taxes are withheld separately from the income-tax withholding gap discussed above. In the example above, add 1.45% Medicare ($3,625) and possibly 0.9% Additional Medicare ($2,250 if income exceeds $200K) on top of the income-tax gap.

Tax event #2: Selling your shares

When you sell RSU shares, the difference between your sale price and the share price on vest date (your cost basis) is a capital gain or loss. The vest-day price is your basis — it's already been taxed as ordinary income.

Two scenarios:

Short-term capital gain (held under 1 year)

If you sell within a year of vesting, the gain is short-term and taxed as ordinary income at your marginal rate — up to 37% federal. Most "sell immediately at vest" programs produce near-zero gain (the spread between vest-day price and same-day sale price) and essentially no capital gains tax. But if you hold and sell within a year of a rising stock, you're adding ordinary income on top of your already-high W-2 income.

Long-term capital gain (held over 1 year)

Hold the shares more than 12 months past vest and the gain converts to long-term capital gains, taxed at the preferential rates below (2026 thresholds for single / married filing jointly):³

Most tech employees with significant RSU income will be in the 15–20% long-term capital gains bracket on share appreciation — a material improvement over 32–37% ordinary rates. The hold-for-a-year decision is one of the few real tax-reduction levers available to W-2 earners.

Net Investment Income Tax (NIIT)

The 3.8% Net Investment Income Tax applies to capital gains (short and long-term) when your modified adjusted gross income exceeds $200,000 (single) or $250,000 (MFJ).⁵ These thresholds are set by the Affordable Care Act and are not inflation-adjusted. At a $20K long-term gain, NIIT adds $760 — modest. At a $500K gain it adds $19,000.

State taxes on RSUs

State treatment of RSU income varies more than most employees realize:

• California: Taxes RSU income at vest at ordinary income rates, up to 13.3%. California also levies its own SDI (State Disability Insurance). Supplemental withholding for CA is 10.23% (flat). The gap on top of this is smaller in CA than in no-tax states because 10.23% supplemental gets deducted from a top marginal of 13.3% — a 3% gap vs a 15% federal gap.
• Washington: No state income tax on ordinary income, including RSUs at vest. But WA has a 7% capital gains tax (passed in 2022) on long-term capital gains above $270,000 per year. Holding RSU shares for long-term treatment can trigger this — an important planning consideration if your total long-term gains are large.
• New York: NY state taxes RSU income at ordinary income rates (up to 10.9% for high earners), plus NYC tax (3.876% for city residents). Total effective marginal rate for NYC residents with RSUs can exceed 55%.
• Texas, Florida, Nevada: No state income tax on RSU vest or capital gains — effectively a lower total burden than CA or NY employees earning the same gross income.

Double-trigger RSUs

Standard RSUs at public companies vest on a time schedule and deliver shares immediately. Double-trigger RSUs, common at pre-IPO companies, have two vesting conditions: (1) the time-based cliff, and (2) a liquidity event (IPO, acquisition). Shares don't deliver — and no tax is owed — until both triggers fire.

At IPO, all double-trigger RSUs that have satisfied the time condition vest simultaneously. If you've accumulated 4 years of unvested double-trigger grants, they all become ordinary income in the IPO year. This is the "equity cliff" that creates unexpectedly large W-2 income in year one and can push employees into the highest brackets even if the stock later drops.

Common mistakes tech employees make

1. Assuming the withholding covers it. For any employee with a marginal rate above 22%, it doesn't. Set aside the gap quarterly as estimated taxes or adjust your W-4.
2. Selling immediately for simplicity, then holding for emotional reasons next time. Develop a consistent sell strategy before you vest, not after. Anchoring to the vesting price makes holding feel like "waiting to get back to even" — a behavioral trap.
3. Ignoring the 1-year holding period. At a 20% LTCG rate vs 37% ordinary, the effective benefit of holding a $100K gain for 12 months is roughly $17K. That's worth modeling before reflexively selling.
4. Forgetting NIIT when modeling sell scenarios. Capital gains models that exclude the 3.8% NIIT underestimate actual taxes by ~20% for high-income employees.
5. Missing estimated tax payments. The penalty for underpayment isn't catastrophic (~8% annualized) but it's avoidable. If you'll owe more than $1,000 at filing and your withholding won't cover 90% of current-year tax or 100% of prior-year tax, you need estimated payments.
6. Letting a concentrated position run past 30% of net worth. After lockup, most liquidity events happen in windows. Having no plan for systematic diversification means the behavioral pull to hold is almost always stronger than the math says it should be.

What a specialist advisor handles that a generalist doesn't

A fee-only advisor who specializes in equity compensation will:

• Model the full-year tax picture across base, bonus, RSU vests, and share sales in one projection — including quarterly estimated tax amounts
• Design a 10b5-1 trading plan to diversify on a schedule that removes decision-making from emotional market moments
• Coordinate RSU sell decisions with ISO exercise timing, AMT exposure, and long-term capital gains planning
• Flag QSBS eligibility if you hold early-exercise shares or founding stock
• Model concentrated-stock diversification strategies (direct indexing, exchange funds, charitable giving via DAF) that reduce tax drag on the way out