How are my Restricted Stock Units (RSU) taxed?

RSUs (Restricted Stock Units) are a popular form of compensation offered by many companies to their employees.

When your RSUs vest, meaning they become available for you to own, the value of the vested shares is treated as ordinary income for tax purposes. This amount will be reflected as ordinary income in your W-2.

Your employer will typically withhold taxes on the value of the vested RSUs at the time of vesting, much like they do with regular income. Sometimes, the withholding is not enough to cover your tax bill. Upon vesting, your employer may sell some of the shares to cover the taxes owed.

Long-Term Capital Gains: Once you own the shares, any future appreciation in their value will be subject to capital gains tax when you eventually sell them. If you hold the shares for more than a year after they vest, any profit will be taxed at the lower long-term capital gains rates. Typically, if you sell the stock right after they vest, there should be no additional tax assessed as your fair market value would usually equal the basis.

RSUs can be a valuable component of your compensation, but it's essential to understand their tax implications. Consult us if you would like to learn more about your individual situation.