Restricted Stock Units (RSUs)
Company shares that vest over time and are taxed as ordinary income at vest — whether or not you sell — with later moves taxed as capital gain or loss.
RSUs become yours as they vest, and their full value at vesting is taxed as ordinary compensation — usually with shares withheld to cover it, often under-withheld for high earners. After vesting they're just stock: future moves are capital gains or losses. The two risks are under-withholding (an April balance due) and quietly accumulating a concentrated position in one company.
Taxed as income the moment they vest
Restricted stock units have no value to you until they vest, and at vesting their full market value is taxed as ordinary compensation — it shows up on your W-2 just like salary. After vesting, the shares are simply stock you own: any further movement is a capital gain or loss measured from the vest-date value, which becomes your basis.
The two quiet risks
First, withholding. Employers typically withhold a flat federal rate on vesting (often 22%), which under-withholds anyone whose marginal rate is higher — leaving a surprise balance due in April. Second, concentration: vest after vest, RSUs accumulate a large position in a single employer, so your paycheck and a growing slice of your net worth ride on the same company.
How Formation handles it
Formation tracks vesting schedules and the resulting employer-stock position, surfacing both the under-withholding gap and the concentration as an outcome (“if this stock fell by half, your net worth would fall by X”). What and when to sell stays your call with your advisor; Formation keeps the exposure and the tax drag in view.
A worked example
You vest $400,000 of RSUs in a year when your marginal rate is 37%. Your employer withholds 22% — $88,000 — but the real tax is closer to $148,000, so you're roughly $60,000 short before state tax. Knowing that gap in the fall lets you top up an estimated payment instead of being surprised in April.
Frequently asked
Are RSUs taxed twice?
No, but it can feel that way. You're taxed once as ordinary income at vesting, and again only on any additional gain if the shares rise before you sell. The vest-date value becomes your basis, so you're not taxed twice on the same dollars.
Why do I owe more tax on RSUs at filing time?
Employers often withhold a flat 22% on RSU vesting, which is below the marginal rate of most high earners. The difference between that flat withholding and your actual rate comes due when you file — unless you cover it with estimated payments.
In Formation
Equity comp tracker
See this in your own numbers.
Formation organizes your whole household by entity and cites every figure to its source — the context that makes terms like this actionable.
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