RSU Taxation: Vesting, Basis, and Capital Gains

An RSU award can create two separate tax events. When shares vest, their value is generally compensation income. When you later sell the shares, the difference between the sale proceeds and the shares' adjusted basis is generally capital gain or loss. Treating the second event as if the entire sale proceeds were gain can overstate the tax result.

This guide is a recordkeeping and decision framework, not individualized tax advice. Read the award agreement, vest confirmation, payroll record, and brokerage statement together; stock-plan rules and state treatment can differ.

What happens when RSUs vest

Restricted stock units commonly settle in shares after the vesting conditions are met. The fair market value of the shares included in compensation is generally reported as wages. The IRS explains that property received for services is income and that basis generally includes the amount included in compensation income. See IRS Publication 525 for the general income-and-basis rule.

The number of shares that land in the brokerage account can be smaller than the number that vested. An employer may withhold shares or sell shares to cover withholding. That changes how many shares remain; it does not erase the compensation event. Keep the vest-date record showing the gross number of shares, fair market value, shares withheld or sold, and withholding amounts.

Basis is the bridge between vesting and a later sale

For shares received at vesting, the starting point for basis is generally the amount already included in compensation income, plus any amount paid for the shares. A simple illustration:

• 100 RSUs vest when the company's shares are worth $40 each.
• The $4,000 vest value is included in wages, subject to the plan's reporting and withholding.
• If the employee later sells 60 retained shares for $46 each, the starting gain calculation is $2,760 of proceeds less $2,400 of basis, or a $360 gain before commissions and any basis adjustments.

This is only a simplified illustration. Corporate actions, transfers, prior wash-sale adjustments, stock-plan fees, and broker reporting can change the final records. Compare the Form W-2, vest statement, and Form 1099-B rather than assuming a broker's basis field contains every payroll adjustment.

The holding period starts after the shares are acquired

Once RSU shares are yours, the timing of a sale can affect whether a later capital gain or loss is short-term or long-term. For stock held more than one year, a later capital gain or loss is generally long-term; stock held one year or less is generally short-term. The short-term versus long-term capital-gains guide explains how that classification interacts with a planned sale and specific-lot selection.

Do not use the grant date to infer the holding period of the delivered shares. Use the award and brokerage records to identify the actual acquisition date, the exact lot, and any adjustments before entering a sale decision.

RSU vests can create a wash-sale conflict

An RSU vest can also matter when another lot of the same employer stock is sold at a loss. The wash-sale rule can disallow all or part of a loss when substantially identical stock is acquired in the 30 days before or after the loss sale. IRS Publication 550 includes an employee incentive-plan example and explains the share matching and basis consequences.

For example, an investor might sell an older employer-stock lot at a loss shortly before a scheduled vest. The vest can be a replacement acquisition. Whether a particular transaction is substantially identical and how the shares match are fact-specific, so do not assume that a calendar reminder or a single brokerage's Form 1099-B settles the question. The RSU wash-sale case study walks through the timing risk, and the stock-compensation guide puts it in the wider equity-compensation workflow.

A pre-sale RSU checklist

Before selling vested company stock, collect these facts:

1. The vest date, gross share count, and fair market value used for payroll reporting.
2. The shares withheld or sold for taxes and the number of shares that remain.
3. The adjusted basis and holding period for the exact lot being sold.
4. Any scheduled RSU vest, ESPP purchase, dividend reinvestment, option exercise, or other employer-stock acquisition in the 30 days before and after a potential loss sale.
5. The role of the sale in the broader plan: diversification, liquidity, a planned gain, or a capital-loss decision.

The concentrated-stock sale checklist covers the portfolio decision separately from the payroll and basis records. If the sale is part of a job change, use the job-transition tax-planning workflow to map vesting and withholding against the rest of the year's income.

Withholding is not the final tax calculation

Employers generally withhold payroll taxes and may use supplemental-wage withholding rules for stock compensation. The withholding method is not a personalized estimate of the eventual tax return. IRS Publication 15 explains employer withholding rules; an investor may need to review total income, payments, deductions, credits, state tax, and projected capital gains with a qualified tax professional.

RSUs are easiest to evaluate when the wage event, the tax lot, and the investment decision stay separate. First reconcile the vest records. Then identify the exact shares and holding period. Finally, assess whether the planned sale fits the portfolio and the wash-sale calendar.