How Are RSUs Taxed? A Guide for Technology Employees

RSUs aren't a bonus. Everyone treats them like one, and that's where the trouble starts.

A bonus is simple. It shows up, it gets taxed, you move on. RSU taxation is quieter than that. Your restricted stock units create taxable income whether or not you ever sell a share, they get withheld at a rate that often isn't your rate, and they leave behind a cost basis that decides what you'll owe years later.

None of that is complicated once you see it. The problem is that most employees never have it explained, so they learn how RSUs are taxed one surprise at a time.

So let me explain the mechanics before they surprise you.

 

What Happens When RSUs Vest?

They get taxed. Immediately.

This is the part that trips people up most. RSUs are taxed at vesting, not when you sell. The moment the shares vest, their full market value becomes ordinary income, and it lands on your W-2 like salary.

You don't have to sell anything for this to happen. You don't even have to do anything. If the shares vest, you've been paid, as far as the IRS is concerned, and you owe tax on that value this year.

That's worth sitting with, because it's the root of almost every RSU tax surprise. The income arrives whether or not you ever touch the shares.

One upside worth knowing: because vesting income shows up as W-2 income, it's the kind of income lenders like. If you're applying for a mortgage, vested RSU income can actually work in your favor.

 

Why Did I Get Fewer Shares Than Vested?

Because your employer sold some to pay the tax.

A lot of people see 100 shares vest, watch only 60 land in their account, and assume something went wrong. Nothing went wrong. What you're seeing is share withholding, shares the company sells on your behalf to cover the tax bill at vesting.

If 100 shares vest, the company might hold back 40 and deposit the other 60. That part is normal. The part that isn't obvious is the rate they used.

Most companies withhold RSU income at a flat 22%. That's the default supplemental wage rate, and it has nothing to do with your actual tax bracket. If you're a senior engineer with a large vesting year, your real rate is usually well above 22%.

So the company withheld something. It just didn't withhold enough.

And because that gap doesn't announce itself, it waits until April. On $200,000 of vesting income, the difference between 22% and your real rate can be more than $20,000 that nobody set aside. This is the single most common miss I see in Google RSU tax planning.

You didn't do anything wrong. The withholding system simply wasn't built for your income.

 

How Are RSUs Taxed When You Sell Them?

It depends entirely on how long you held.

The day your shares vest, that price becomes your cost basis, the baseline the IRS measures your future gain against. That number matters more than people expect, because everything after vesting is measured from it.

Sell later for more than the vesting price, and the difference is a capital gain. How that gain is taxed comes down to timing.

Sell within a year of vesting, and it's a short-term capital gain, taxed at your ordinary income rate. Hold longer than a year, and it may qualify for the lower long-term capital gains rate.

Here's the part worth being honest about. For a lot of high earners in tech, short-term gains are taxed at roughly the same rate as the vesting income itself. Which means the hold-or-sell choice usually isn't really a tax decision at all. It's a risk decision: how much of your wealth do you want riding on one company?

And if the stock has fallen below your vesting price, selling isn't only a loss. Realized on purpose, it can offset other gains, a strategy called tax-loss harvesting. A down position is sometimes worth more as a tax tool than as a hope.

 

Why Does a Big Vesting Year Cost So Much in Taxes?

Because RSUs stack.

One grant is manageable. But grants overlap, refreshers land on top of older awards, and a strong stock year inflates all of them at once. A big vesting year can push you into a higher bracket or hand you a tax bill you never saw coming.

The fix isn't complicated, but it requires looking forward instead of backward. Read your vesting schedule before the year happens, not after. Adjust your withholding if it's lagging. Make estimated quarterly payments if you need to. And pull every pre-tax lever you have, your 401(k), HSA, and FSA, to bring taxable income down where you can.

None of this is exotic. It's just the difference between anticipating the bill and being surprised by it. That difference is most of what good Google RSU tax planning actually is.

 

Do I Owe State Tax on RSUs If I Move?

Often, yes, and not to the state you'd expect.

State tax adds a layer most people don't think about until they relocate. Some states don't tax RSU income based on where you live when it vests. They tax it based on where you worked while it was vesting.

So if you earned a grant in California and it vests after you've moved away, California may still want its share.

For anyone moving between high-tax states like California and New York, this gets complicated fast. It's exactly the kind of thing worth running past an equity compensation advisor or tax professional before you move, not after.

 

The Real Point

RSUs aren't a bonus. They're a second income system layered on top of your salary, one that arrives on its own schedule, taxes itself imperfectly, and leaves decisions behind whether you make them or not.

Left unmanaged, that system creates surprise tax bills, concentration risk, and missed opportunities.

Managed well, it becomes one of the most powerful wealth-building tools you'll ever have.

The tax mechanics are just the entry point. The real work is deciding what all of it is supposed to build. That's what financial planning for Google employees, done right, is actually for.

 

Continue Learning

If you're new here, start with the foundation and work outward:

Understanding RSU Compensation at Technology Companies

RSU Guide for Tech Employees: Start Here

 

For the bigger-picture reframe:

RSUs Aren't Just Income. They're a Forced Investment Decision.

 

And for the concentration side:

Managing Concentrated Stock Positions for Technology Employees

 

Schedule a sync:

If any of this is sitting unanswered in the back of your mind, that's usually the sign it's worth a conversation. You're welcome to schedule a 30-minute introductory call whenever the timing feels right.

 

Disclaimer: This is general information, not individualized tax or investment advice. Outcomes depend on your specific situation. Please coordinate with your CPA or advisor.