Restricted Stock Units (RSUs) are a popular form of compensation that many employers offer. They can be valuable, but they also create confusion at tax time. This guide provides a clear explanation of how RSUs are taxed and what to look for when reviewing your tax documents.

1. What Are RSUs?

RSUs are company shares that are granted to you, but with restrictions. You don’t own them right away. Instead, you receive the shares after a vesting period, often tied to your continued employment.

2. How Are RSUs Taxed?

✅ At Grant:

• RSUs are not taxed when granted.

✅ At Vesting:

• When RSUs vest, their fair market value (FMV) is treated as ordinary income.
• This value is reported on your W-2 and is subject to income tax, Social Security, and Medicare.
• Many employers will sell some shares to cover the required taxes (called “sell-to-cover”).

✅ At Sale:

• When you later sell the shares, you may have a capital gain or loss.
• The cost basis is the FMV at the time of vesting.
• If you sell right after vesting, there is often little or no gain.
• If you hold the shares:
  • Less than 1 year = Short-term capital gain
  • More than 1 year = Long-term capital gain

3. What Tax Forms Will You See?

Important: Some brokers (e.g., Charles Schwab) report a $0 cost basis by default. If not adjusted, this can result in double taxation. Make sure your tax preparer adjusts the basis to the vesting FMV.

4. Key Takeaways

• RSUs are taxed as income when they vest, not when they are granted.
• You will see the income on your W-2, not on a separate 1099.
• Any gain or loss from selling RSU shares is reported separately.
• Keep track of your vesting schedule and save your pay stubs or employer equity statements.

Questions?

Always bring your W-2 and brokerage statements to your tax appointment. If anything looks off, we can help ensure you’re not overpaying or underreporting your RSU income.

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