---
title: "What Is RSU Tax?"
term: "RSU Tax"
description: "RSU tax is the income and payroll tax owed when restricted stock units vest and shares are delivered — based on fair market value at settlement, not at grant."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/rsu-tax
---

# What Is RSU Tax?

> RSU tax is the income and payroll tax owed when restricted stock units vest and shares are delivered — based on fair market value at settlement, not at grant.

**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](/glossary/rsu) 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](/glossary/rsu), [83(b) election](/glossary/83b-election), [restricted stock](/glossary/restricted-stock), and [equity incentive plan](/glossary/equity-incentive-plan).

## FAQ

### What is RSU tax in simple terms?

When RSUs vest and you receive shares, the IRS treats the value as ordinary income — like a cash bonus. Your employer typically withholds taxes by selling some shares (sell-to-cover) or taking cash from payroll.

### Why does RSU tax matter?

For employees, a vesting cliff into a high stock price can create five-figure tax due even if you have not sold shares. For founders offering RSUs, bad tax communication drives retention problems after IPO.


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Source: https://venturecapitaltracker.com/glossary/rsu-tax