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Introduction
Marcus stared at his laptop screen, watching his company's stock price climb past $190 per share. His RSUs had vested at prices ranging from $75 to $165 over the past three years. Now he was considering selling everything to buy a house. His first thought wasn't about the down payment. It was about the tax bomb waiting for him.
Sound familiar? You're not alone. Restricted Stock Units create one of the most complex tax situations in modern compensation, and most people have no idea what they'll owe until it's too late. The difference between smart RSU planning and winging it can easily cost you tens of thousands of dollars.
Here's what most people don't realize: your RSU tax bill has two completely separate components. You already paid ordinary income tax when your shares vested. But when you sell those shares, you might owe capital gains tax on top of that. The amount depends on how long you held each batch of shares and how much the stock price moved since each vesting date.
The good news? You can calculate this ahead of time. Every vesting date creates a separate "lot" with its own cost basis and holding period, which means you can project your exact tax liability for any future sale scenario. This article covers how to calculate capital gains taxes on RSUs, including step-by-step formulas, tax rate differences, quarterly vesting tracking, and optimization strategies.
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What Are RSU Capital Gains Taxes?
RSU capital gains taxes are taxes you pay on the profit when you sell Restricted Stock Units after they vest. These taxes are separate from the ordinary income taxes you already paid when the shares vested.
When you sell RSU shares, you owe capital gains tax on the difference between the vesting price (your cost basis) and the sale price. The tax rate depends on how long you held the shares after vesting.
How RSU Taxation Works: The Two-Tax System
RSUs trigger two separate tax events:
Tax Event 1: At Vesting
- You pay ordinary income tax on the fair market value of the shares
- This amount appears on your W-2
- Your employer typically withholds approximately 22% for federal taxes
- The vesting price becomes your cost basis
Tax Event 2: At Sale
- You pay capital gains tax on the profit (sale price minus vesting price)
- Short-term capital gains (held less than 12 months): taxed as ordinary income
- Long-term capital gains (held more than 12 months): taxed at preferential rates
Example: 100 shares vest at $120 per share. You pay ordinary income tax on $12,000. Two years later, you sell at $180 per share. You pay long-term capital gains tax on the $60 per share profit ($6,000 total), not on the full $18,000 sale proceeds.
The IRS provides detailed guidance on Net Investment Income Tax calculations for high earners.
How to Find Your RSU Cost Basis
Your cost basis equals the fair market value of the stock on each vesting date. To find this information:
- Check your W-2 forms (RSU income is reported here)
- Review equity compensation statements from your employer
- Access your company's stock plan administrator portal
- Contact your company's HR or stock plan administrator directly
Most companies maintain detailed records of all vesting events and can provide this information upon request.
For detailed guidance on determining your cost basis, see IRS Publication 550.
Why Quarterly Vesting Complicates RSU Capital Gains
Most RSU grants vest quarterly over four years. Each quarterly vesting creates a separate tax lot with its own:
- Cost basis (based on stock price that day)
- Holding period (starting from that specific vesting date)
- Capital gains calculation
This means you must track each vesting separately to calculate accurate capital gains.
Example:
Sarah's 1,600 RSUs vest 100 shares per quarter starting in 2022:
- Q1 2022: 100 shares at $95 (cost basis: $9,500)
- Q2 2022: 100 shares at $110 (cost basis: $11,000)
- Q3 2022: 100 shares at $125 (cost basis: $12,500)
- Q4 2022: 100 shares at $140 (cost basis: $14,000)
When Sarah sells in September 2025 at $200 per share:
- Q1 batch: $105 per share gain = $10,500 total
- Q2 batch: $90 per share gain = $9,000 total
- Q3 batch: $75 per share gain = $7,500 total
- Q4 batch: $60 per share gain = $6,000 total
Total capital gains from first year: $33,000
Short-Term vs. Long-Term Capital Gains: Tax Impact
The holding period determines your tax rate. The holding period starts on each vesting date, not your original grant date.
Tax Rate Comparison Example:
Jennifer has $50,000 in capital gains split between short-term and long-term:
Scenario 1: Mixed holding periods
- $25,000 long-term gains at 15% = $3,750
- $25,000 short-term gains at 32% = $8,000
- Total tax: $11,750
Scenario 2: All long-term
- $50,000 long-term gains at 15% = $7,500
- Total tax: $7,500
Tax savings from waiting: $4,250
The IRS provides complete capital gains tax rate tables updated annually.
Common RSU Capital Gains Mistakes
Mistake 1: Assuming company withholding covers all taxes
Companies typically withhold 22% for federal taxes at vesting, but your actual tax rate may be higher. This withholding does not cover capital gains taxes when you sell.
Mistake 2: Poor record-keeping
Without detailed records of each vesting date and stock price, you cannot accurately calculate your cost basis. This often leads to overpaying taxes.
Mistake 3: Selling before long-term qualification
Selling shares just before they reach the 12-month holding period triggers ordinary income tax rates instead of preferential long-term rates.
Mistake 4: Ignoring state taxes
Some states tax capital gains as ordinary income, while others have no state income tax. State tax treatment significantly impacts your total tax liability.
Mistake 5: Wash sale violations
If you sell RSU shares at a loss and buy the same stock within 30 days, the IRS disallows the loss deduction.
The wash sale rule prevents you from claiming losses if you repurchase the same security within 30 days.
Frequently Asked Questions About RSU Capital Gains
How do I find the cost basis for RSUs that vested years ago?
Your cost basis equals the fair market value of the stock on each vesting date. Check your old W-2 forms, equity compensation statements, or contact your company's stock plan administrator. Most companies maintain detailed records of vesting events and can provide this information upon request.
Can I use specific identification to choose which shares to sell?
Yes, you can specify which tax lots to sell, allowing you to optimize for tax purposes. You might choose to sell shares with the highest cost basis first to minimize gains, or prioritize long-term holdings to benefit from preferential tax rates. Make sure to document your specific identification instructions with your broker.
What happens if I leave my company before all RSUs vest?
Unvested RSUs typically are forfeited when you leave, though some companies allow accelerated vesting in certain circumstances. Vested RSUs remain yours to keep, but you may face restrictions on when you can sell them. Check your equity compensation agreement for specific terms.
Do RSU capital gains count toward the net investment income tax?
Yes, if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), your RSU capital gains may be subject to the additional 3.8% net investment income tax. This applies to both short-term and long-term gains.
How do stock splits or dividends affect my RSU cost basis?
Stock splits adjust both your share count and cost basis proportionally. If you owned 100 shares with a $50 cost basis and the stock splits 2-for-1, you'll own 200 shares with a $25 cost basis each. Dividends don't affect cost basis but may trigger additional tax obligations.
Can I offset RSU gains with losses from other investments?
Yes, capital losses from other investments can offset RSU capital gains. Short-term losses offset short-term gains first, then long-term gains. Long-term losses offset long-term gains first, then short-term gains. Net losses up to $3,000 can offset ordinary income annually.
What records should I keep for RSU transactions?
Maintain detailed records of each vesting event including date, number of shares, and stock price. Keep all equity compensation statements, tax forms, and sale confirmations. Document any corporate actions like splits or spin-offs that might affect your cost basis calculations.
How do state taxes affect RSU capital gains calculations?
State treatment varies significantly. Some states tax capital gains as ordinary income, others provide preferential rates, and some have no state income tax. If you move between states, the timing of your RSU sales relative to your relocation can impact your total tax liability.
Should I sell RSUs immediately upon vesting to avoid capital gains?
This depends on your individual situation. Immediate sales eliminate capital gains risk but also eliminate potential upside. Consider your overall portfolio diversification, tax situation, and financial goals. Sometimes holding for long-term treatment provides better after-tax returns despite the additional risk.
Can I contribute RSU shares to a retirement account?
You cannot directly contribute RSU shares to traditional retirement accounts like 401(k)s or IRAs. However, you can sell the shares and contribute the cash proceeds, subject to annual contribution limits. Some companies offer employee stock purchase plans that might provide alternative tax-advantaged options.