RSU tax refers to the ordinary income and payroll taxes due when restricted stock units vest and shares are delivered to the holder.

How it works

Grant date usually triggers no tax for standard RSUs. At each vest/settlement, FMV × shares vested = W-2 income. Federal, state, and FICA apply.

Public companies commonly use sell-to-cover: enough shares sell automatically to pay withholding. Employees can elect cash transfer if they have spare cash to keep all shares — a bet on future price.

Example: 1,000 RSUs vest at $50/share → $50,000 income. At 40% combined withholding, ~$20K taxes due — often 400 shares sold, 600 delivered.

Private companies may delay settlement until liquidity; tax still hits at delivery unless structure differs (consult a tax advisor). RSUs differ from ISO options, which may qualify for capital gains treatment on exercise and hold rules.

International employees face local tax and social charges with different settlement mechanics.

Why it matters

• Founders / operators: Model vest schedules against personal tax capacity; consider quarterly estimated taxes if withholding is insufficient.
• Investors: Less direct impact, but talent retention post-IPO depends on employees understanding RSU tax — not just grant face value.

Common mistake

Assuming RSUs are taxed like long-term capital gains at vest. Without an 83(b) on rare early-delivery structures, vesting is ordinary income; capital gains treatment applies only on appreciation after settlement when shares are later sold.

Related ideas

See also RSU, 83(b) election, restricted stock, and equity incentive plan.