Quick answer
What is the RSU tax rate, and can you reduce it?
RSUs are taxed as ordinary wages when they vest, at your marginal rate of up to 37% federal plus state and payroll tax. You cannot change that character, but you can avoid underpayment penalties, lower taxable income with 401(k), HSA and charitable moves, time vests and sales, and harvest losses against the shares you keep.
Key takeaways
- 01Vest value is ordinary income; only growth after vest is a capital gain.
- 02Flat 22% withholding under-withholds most high earners.
- 03Pay the 110% prior-year safe harbor if your AGI was over $150,000.
- 04Giving appreciated vested shares to charity or a DAF is the biggest lever left.
| Tax at vest | Ordinary income at your marginal rate |
|---|---|
| Supplemental withholding | 22%, or 37% above $1M |
| Safe harbor | 100% of last year's tax, or 110% if AGI was over $150K |
| 2026 401(k) limit | $24,500 |
| After vest | Gains taxed as capital gains |
| Basis | Value included in wages at vest |
The Short Answer
What is the RSU tax rate, and can you reduce it?
RSUs are taxed as ordinary wages at vest, at your marginal rate of up to 37% federal plus state and payroll tax. You cannot change that character, but you can avoid under-withholding penalties, lower taxable income with 401(k), HSA and charitable moves, time vests and sales, and use tax-loss harvesting on the shares you keep.
Start with the basics in What Are Restricted Stock Units? and How Are RSUs Taxed?. This article is about what you can do about it.
The Gap
Why 22% withholding leaves a bill
Employers withhold federal tax on RSU income as supplemental wages: a flat 22% on supplemental wages up to $1M in the calendar year, and a mandatory 37% on the amount above $1M. If your marginal rate is 32%, 35% or 37%, the 22% rate leaves a gap you owe at filing.
Calculator
Your withholding gap at vest
Enter your vest value for the year and your federal marginal rate. Assumes all vest income is under the $1M supplemental threshold.
Withheld at 22%
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Federal tax at your rate
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Gap to cover
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Illustrative only; not tax advice. Ignores state tax, the 37% rate above $1M and other income. Uses your marginal rate for the whole vest.
Chart
Gap on a $500K vest by bracket
Penalties
How do you avoid an underpayment penalty?
You generally avoid the federal underpayment penalty if withholding and timely estimates cover the smaller of 90% of this year's tax or 100% of last year's tax, rising to 110% of last year's if your prior-year AGI exceeded $150,000 ($75,000 married filing separately). Withholding is treated as paid evenly through the year, so increasing withholding late in the year can catch you up.
Estimate total tax after each vest, not just in April
Pay quarterly estimates or raise W-4 withholding on salary
Ask whether your plan lets you elect higher RSU withholding (some allow up to 37%)
Set the gap aside in cash on vest day
Offsets
What can lower taxable income?
RSU income itself can't be deferred, but other choices lower your taxable income in a big vest year. For 2026 the 401(k) employee deferral limit is $24,500, and the HSA limit is $4,400 self-only or $8,750 family. A donor-advised fund lets you bunch several years of giving into a high-income year, especially by giving appreciated shares.
Chart
Federal tax saved by offsets in a 37% bracket
2026 charitable changes: From 2026, itemized charitable deductions only count above 0.5% of AGI, and top-bracket filers get a maximum 35% benefit. Giving appreciated stock still avoids the capital gains tax on that stock.
Where Embark fits
You paid tax at vest. Don't pay again to diversify.
Enter your ticker and see what your vested shares could target in income.
- Vested RSU shares can target income without a sale
- In-kind contribution under §721 means $0 tax at contribution
- Targets 10%+ annual income while you keep the upside
Run the numbers
Live prices · takes under a minute · no obligation
Hold or Sell
Should you hold or sell at vest?
Holding RSUs after vest is the same as using your after-tax cash to buy company stock. Selling at vest usually creates little or no gain, because your basis is the vest-date value. Holding for more than a year can turn later gains into long-term gains, but it adds concentration risk.
| Choice | Tax result | Risk |
|---|---|---|
| Sell at vest | Little or no extra tax | None from the stock |
| Hold under 1 year | Short-term gain at ordinary rates | Concentrated |
| Hold over 1 year | Long-term rates up to 20% + 3.8% NIIT | Concentrated |
See vesting schedules and sell-to-cover and diversifying concentrated RSU stock.
State & Timing
How do state sourcing and vest timing matter?
States generally source RSU income by where you worked during the vesting period, so moving from California to Texas mid-grant may still leave part of later vests taxable in California. Keep workday records.
Timing also matters. If a big vest year coincides with a lower-income year, such as a sabbatical, or if you control a leave date before an unvested tranche, think about which tax year income lands in. You usually can't change the vest date, but you can decide when to sell, donate or harvest losses.
Do
- Pair RSU sales with tax-loss harvesting elsewhere (tax-loss harvesting)
- Fix the cost basis on Form 8949 (cost basis guide)
- Donate long-held appreciated shares instead of cash
Don't
- Rebuy company stock within 30 days of a loss sale (wash sale; new vests count as purchases)
- Count on 22% withholding covering your bill
- Forget state tax after a move
After Vest
What about the shares you keep?
Embark contributes concentrated stock into an SPV in exchange for partnership interests, an in-kind contribution that is generally a nonrecognition event under IRC §721, so $0 tax is due at contribution. The SPV targets 10%+ annual income while you keep exposure to the upside. Accredited investors only; targets are not guarantees. For RSU holders, it is an alternative to selling appreciated shares that have built up a capital gain. It does not reduce the ordinary income tax at vest.
FAQ
RSU tax planning questions
What is the tax rate on RSUs?
Your ordinary income rate at vest, up to 37% federal, plus Social Security, Medicare and state tax. Later appreciation is a capital gain.
Can I defer RSU taxes?
Not for standard RSUs; tax is due at vest. Some companies offer deferred settlement, which follows separate rules.
Is 22% withholding enough?
Only if your marginal rate is about 22% or lower. Higher earners usually owe more at filing.
Does maxing my 401(k) reduce RSU taxes?
It reduces taxable income by up to $24,500 in 2026, which lowers your total tax, including on RSU income.
Can tax-loss harvesting offset RSU income?
Capital losses offset capital gains and up to $3,000 of ordinary income per year, so they mainly offset gains on shares sold after vest.
Why does my RSU income show up twice on my tax forms?
It is in W-2 wages, and the sale appears on Form 1099-B, often with a zero basis. Adjust basis on Form 8949 or you pay tax twice.
Can I choose a higher withholding rate on RSUs?
Many employers allow it. If not, raise W-4 withholding on salary or make estimated payments.
Is it better to sell RSUs at vest?
Selling at vest creates almost no extra tax and removes concentration risk. Holding is a fresh investment decision.
Sources
Primary sources
Sources
Cite this article
Embark Funds Research. “RSU Tax Planning Strategies to Minimize the Bill.” Embark Funds, updated October 15, 2026. https://www.embarkfunds.com/insights/rsu-tax-planning-strategies
Not tax, legal or securities advice: This article is educational. Charitable, securities and tax rules depend on your facts and your company's policies. Work with a CPA, an estate attorney and, for insiders, securities counsel before acting. Embark income figures are targets, not guarantees, and contributed shares have a 3-year lock-up.
RSUs: The Complete Guide Series
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Income From Vested RSUs Without a Second Tax Event
Selling appreciated RSU shares triggers capital gains. Embark's SPV takes an in-kind contribution with $0 tax at contribution and targets 10%+ annual income. Accredited investors only; targets are not guarantees.