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2026 tax year · equity compensation

Restricted Stock Units tax

RSUs are taxed as wages the moment they vest, whether or not you sell. The trap is the withholding rate: your employer takes a flat percentage that is usually too little.

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Updated for 2026 rules

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Two taxable events, not one Equity compensation creates two taxable events: (1) ordinary income when shares vest or options are exercised, (2) capital gain/loss when shares are sold. Misunderstanding this two-layer structure is the most expensive equity tax mistake.

The withholding gap

Your employer withholds federal tax on a vest at a flat supplemental rate, 22% below $1 million, 37% above it. That is not your marginal rate, and for anyone in the higher brackets it is not close.

On $60,000 of vesting stock for someone already earning $180,000: the employer withholds $13,200, the vest costs $16,170 in federal tax, and the difference, $2,970 turns up as a bill in April.

22% under-withholds for anyone in 32%+ bracket. Gap = (marginal_rate - 0.22) x RSU_income. Fix via increased W-4 withholding or quarterly payments.

Withheld vs actual federal tax on a $60,000 RSU vest at a $180,000 salary, single filer, 2026 Employer withholds $13,200 Vest actually costs $16,170
Withheld vs actual federal tax on a $60,000 RSU vest at a $180,000 salary, single filer, 2026

RSU tax by state

A vest is ordinary income in your state as well as federally. What that costs, state by state:

Compare the instruments

The other equity instruments

ISO tax The equity mistake that costs the most: AMT on an exercise you never sold. NSO tax The equity mistake that costs the most: tax due on exercise with no cash to pay it. ESPP tax The equity mistake that costs the most: selling one day too early. QSBS tax The equity mistake that costs the most: assuming five years when the rules just changed. Phantom stock & SARs tax The equity mistake that costs the most: expecting capital-gains treatment on a cash bonus.

Equity is two taxable events, not one

Vesting or exercising is ordinary income; selling later is a capital gain or loss. The costliest equity mistakes come from treating that two-layer structure as one: underestimating the vesting-day bill, or missing a holding period that would have turned ordinary income into a lower capital-gains rate. Work out both layers before the vest, not at filing.

Model the sale side

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