ContractsCounsel Logo

RSU Tax:
How Are Restricted Stock Units Taxed?

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,494 reviews
Home Blog RSU Tax: How Are Restricted Stock Units Taxed?

Jump to Section

Speak To An Expert
Have a question about RSUs? Purchase a 30-minute paid consultation with an expert that will answer questions you have. Once purchased, we will connect you with a lawyer to arrange a call.
*By purchasing a consultation, you acknowledge that you have read and understood ContractsCounsel's Terms of Use.

What Are Restricted Stock Units (RSUs)?

Restricted stock units (RSUs) are a form of restricted stock that are granted to employees of companies as a form of stock-based compensation. Many corporations grant RSUs to executive with the purpose of incentivizing them to add as much value to the company as possible so they can benefit in the increasing stock price.

RSUs are a form of restricted stock, which means they are ‘restricted’ in some form. RSUs typically have a vesting schedule and are only owned by the employee once they become fully vested. The fact that they have a vesting schedule is the ‘restriction’ for the RSUs.

It is worth noting that another form of restricted stock is called restricted stock awards, or RSAs, which are essentially RSUs without the vesting schedule.

Here is an article about restricted stock units.

How Are Restricted Stock Units (RSUs) Taxed?

RSUs are taxed at the ordinary income rate and tax liability is triggered once they vest. This is different from incentive stock options , which are taxed at the capital gains rate and tax liability is triggered when the options are exercised .

Here is an article on employee stock options.

RSUs can also be subject to capital gains tax , but this would only apply to any gain in the stock price, after you sell the stock, that may have occurred after they stock was issued to you that created a profit.

For example, if you are issued $10,000 worth of RSUs as part of your compensation package, you will pay ordinary income tax on $10,000. If you choose to hold onto $5,000 worth of stock (not sell) and the stock increases to a value of $7,000, you will need to pay capital gains tax on the $2,000 value increase.

Are RSUs Taxed Twice?

No, RSUs are not taxed twice. However, it can seem like RSUs are taxed twice if you hold onto the stock and it increases in value before you sell it. RSUs are taxed at the ordinary income tax rate when they are issued to an employee, after they vest and you own them.

RSUs can trigger capital gains tax, but only if the stock holder chooses to not sell the stock and it increases in value before the stock holder sells it in the future. In other words, if the stock increase in value after you’ve paid ordinary income tax on it, and you sell it in the future at a profit, you will need to pay tax on that profit.

Below is an example that shows both tax scenarios and outlines that RSUs are only taxed once:

  • Alice is an executive of a fast-growing company and receives RSUs are part of her executive compensation package.
  • Alice has $25,000 worth of RSU stock vest in 2019, meaning Alice now owns the stock outright.
  • Alice now has a tax liability on the $25,000 worth of stock, which is taxed at the ordinary income rate .
  • In order to pay the tax, Alice chooses to sell half of the stock immediately, but does not immediately sell $12,500 worth of stock.
  • The $12,500 worth of stock appreciates by $2,000 in 2020 before Alice finally sells her position of $14,500.
  • Alice is now liable for paying capital gains tax on the $2,000 appreciation.
  • This $2,000 was value created by holding onto the stock and it performing well, and was not value granted in the RSU issuance. Thus, the $2,000 was not previously taxed at ordinary income rate.

Here is an article on RSU tax.

Meet some lawyers on our platform

Justin K.

27 projects on CC
View Profile

Scott S.

41 projects on CC
View Profile

Ryenne S.

434 projects on CC
View Profile

Brian R.

1 project on CC
View Profile

Ordinary Income Tax vs. Capital Gains Tax

As the example above outlines, when RSUs are issued to an executive or employee, they are taxed at the ordinary income rate. The only time capital gains tax comes into play is when the recipient of the RSUs choose to not sell the stock immediately and it appreciates in value before selling it.

In summary:

  • Ordinary Income Tax : RSUs are taxed at the ordinary income rate when issued, typically after a vesting schedule.
  • Capital Gains Tax : RSUs are only exposed to capital gains tax if the stockholder holds onto the stock and it appreciates in value before selling it. The profit (amount of value increased through appreciation) is what is exposed to capital gains tax.

Click here to browse some of our tax lawyers.

Section 83(b) Election

The Internal Revenue Service (IRS) allows for restricted stock shareholders to report the fair market value (FMV) of the stock when it is granted, as opposed to when the employee earns it through vesting. This is called the Section 83(b) Election.

The benefit of this is seen through the tax rate. Given the shareholder has elected to report the FMV on the grant date, they will only be exposed to capital gains tax on any appreciation of the stock that occurs during vesting. This is especially useful when the shareholder plans to hold the stock for a long time.

Here is an article on Section 83(b) Elections.

ContractsCounsel RSU Taxation Image

Image via Pexels by Burak

Understanding RSUs, Vesting Schedules, and Taxes

As the name of restricted stock units imply, there is a ‘restriction’ for the employee in order to get the stock. This restriction is realized in the form of vesting. Below are the different types of vesting:

  • Time-based Vesting : Time-based vesting is exactly what it sounds like. An employee’s shares become vested over time at their employer.
  • Milestone-based Vesting : Milestone-based vesting is when stocks vest as an employee completes certain value-creating milestones for the company.
  • Hybrid Vesting : A hybrid vesting schedule would include both time and milestone achievement goals.

Vesting and Taxes

The most important thing to understand about RSUs, vesting, and taxes is when the RSUs vest, their ownership is transferred to the employee or executive and they immediately have tax liability on the value of the RSUs.

In other words, if you are granted $10,000 worth of RSUs and they fully vest in the 2020 calendar year, you will have tax liability on the $10,000 worth of stock – which will be at the ordinary income rate.

Here is an article about vesting stock.

Speak To An Expert
Have a question about RSUs? Purchase a 30-minute paid consultation with an expert that will answer questions you have. Once purchased, we will connect you with a lawyer to arrange a call.
*By purchasing a consultation, you acknowledge that you have read and understood ContractsCounsel's Terms of Use.

Reporting RSU Tax on Tax Return

Given restricted stock is routinely granted as a form of employee compensation, you will usually see it reported on your W-2. Typically, employees withhold taxes on behalf of their employees, which will go against what you owe when doing your taxes.

If your employer does not withhold tax on your RSUs, you will likely be responsible for paying estimated taxes on their value. With all estimated taxes, you’ll need to send the IRS quarterly payments which estimate the amount of tax you’ll be liable for at the end of the year.

Restricted stock is also regulated by the Securities Exchange Commission (SEC) since it is routinely granted to executives that are ‘in the know’ about a company. For this reason, it is exposed to insider trading rules.

Here is an article on reporting RSU taxes.

Getting Help With RSU Taxes

Restricted stock and RSUs can be complicated to navigate from a legal and tax standpoint. RSUs and other forms of employee compensation are typically put in place using a legal agreement. If you need help with this type of employee compensation agreement, feel free to post a job in the ContractsCounsel marketplace for free to get bids from qualified lawyers.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Andy K. on ContractsCounsel
View Andy
Member Since:
May 20, 2023

Andy K.

Free Consultation
13 Yrs Experience
Licensed in MI
Michigan State University College of Law

Licensed in MI since 2010. Practiced SSDI appeals and auto negligence for over a decade until 12/2022 when I left largest personal injury firm In MI to open my own estate planning firm. Looking for part-time contract/remote work to supplement income as I build my own practice.

Nancy S. on ContractsCounsel
View Nancy
Member Since:
May 21, 2023

Nancy S.

Free Consultation
Houston, Texas
41 Yrs Experience
Licensed in TX
University of Houston

Seasoned corporate, business and real estate attorney with 30 years experience managing private practice groups and in-house legal functions for publicly traded, privately held, and family companies.

Bethany T. on ContractsCounsel
View Bethany
Member Since:
May 22, 2023

Bethany T.

Free Consultation
Florida and California
14 Yrs Experience
Licensed in CA, FL
Chapman University School of Law

I am an experienced family law attorney licensed in California and Florida with over 13 years of experience.

Maria M. on ContractsCounsel
View Maria
Member Since:
May 21, 2023

Maria M.

Free Consultation
North Carolina
27 Yrs Experience
Licensed in NC, NJ, PA
Temple University Beasley School of Law

I have worked for over 20 years in the areas of family law, business formation, contracts and real estate law. In the area of family law, I represent clients in all areas of family law including child custody, child support, spousal support and marital property division as well as preparing prenuptial and separation agreements. I am experienced in real estate law, including commercial and residential leases, preparing various types of real estate related contracts. I am also experienced in business formation among other business law matters. I currently work in the area of grant management with the Small Business Administration.

Don K. on ContractsCounsel
View Don
Member Since:
May 22, 2023

Don K.

Free Consultation
1 Yr Experience
Licensed in AL
Lincoln Memorial University

Oliver Keene is not your typical attorney. With a personal touch and a passion for helping others, he goes above and beyond to provide exceptional legal services. Born and raised in the heart of the Appalachian coalfields, Oliver understands the value of hard work and perseverance. His small-town upbringing instilled in him a deep sense of community and a commitment to making a difference in people's lives. Oliver's journey in the legal field began with a Bachelor's degree in Criminal Justice from Bluefield University. He went on to earn his Juris Doctorate from Lincoln Memorial University - Duncan School of Law, where he excelled in his studies and developed a strong foundation in law. Throughout his career, Oliver has gained invaluable experience working as a public defender, an attorney advisor for the Small Business Administration, and in various legal roles. With a focus on estate planning and business law, Oliver is dedicated to helping individuals and families protect their assets, plan for the future, and navigate the complexities of the legal system. His approachable demeanor, attention to detail, and genuine care for his clients set him apart. Oliver's clients can trust that he will go the extra mile to ensure their legal needs are met with the utmost professionalism and personalized service. Outside of his legal practice, Oliver enjoys spending time with his wife and daughter, exploring the great outdoors, and indulging in his passion for hunting and fishing. His commitment to serving military families is evident in his offering of discounted services as a token of gratitude for their sacrifices. When you choose Oliver Keene as your attorney, you're not just hiring a legal professional - you're gaining a trusted advisor and a compassionate advocate. With Oliver by your side, you can have confidence that your legal matters will be handled with the highest level of expertise and care.

Angela H. on ContractsCounsel
View Angela
Member Since:
May 23, 2023

Angela H.

Free Consultation
13 Yrs Experience
Licensed in DC, PA
University of Dayton

Angela Hayden is an accomplished and driven attorney with a diverse professional background that sets her apart. Having served as a former Assistant Public Defender in Allegheny County, Angela acquired invaluable expertise in navigating the complexities of the criminal justice system. Her trial experience spans a wide range of cases, from minor retail theft to complex criminal homicide, demonstrating her ability to deliver successful outcomes for her clients. Prior to her focus on criminal defense, Angela honed her skills in public policy and political consulting through her work with both the Pennsylvania and United States House of Representatives. This experience provided her with a deep understanding of the intricacies of public policy and the ability to offer strategic guidance to clients. Angela's career also took her to a civil defense firm, where she traveled across the country, defending clients in litigation. This experience enhanced her ability to handle complex civil matters and strengthened her litigation skills. In addition to her expertise in criminal defense and civil litigation, Angela has demonstrated her proficiency in employment law, providing guidance and consultation to small businesses and non-profit organizations. Her keen insight into employment law matters ensures that businesses operate within legal boundaries while fostering a positive work environment. Furthermore, Angela is a licensed realtor, well-versed in residential real estate transactions. This additional knowledge allows her to offer comprehensive legal support to clients involved in real estate matters, ensuring their interests are protected throughout the process. Angela holds a degree from Hampton University and obtained her Juris Doctor from the University of Dayton School of Law. She is pursuing a Master of Business Administration. She is licensed to practice law in Pennsylvania and the District of Columbia, demonstrating her commitment to providing exceptional legal services in multiple jurisdictions. With her extensive experience and passion for achieving favorable outcomes for her clients, Angela Hayden is a dedicated advocate ready to guide you through your legal journey.

Dean S. on ContractsCounsel
View Dean
Member Since:
May 22, 2023

Dean S.

Free Consultation
San Diego, California
13 Yrs Experience
Licensed in CA
University of Michigan

Dean represents client in all manners of tax controversy and provides comprehensive business consulting to corporations, LLCs, and non-profits. He has worked with multi-national companies, but most enjoys assisting small businesses with all legal matters from formation to dissolution. Dean routinely represents individuals and businesses before the IRS and various state taxation agencies. From audits to appeals, he works closely with his clients to reach favorable outcomes and beneficial resolutions. Though he assists many clients in his home state of California, Dean values working with a diverse clientele throughout the country.

Thomas S. on ContractsCounsel
View Thomas
Member Since:
August 11, 2023

Thomas S.

Free Consultation
Boulder, Colorado
28 Yrs Experience
Licensed in CO, NY
University of Colorado

28+ years experience. Licensed in Colorado and New York. Areas of expertise: estate planning, wills and trusts; trademark law;patent law; contracts and licensing; small business organization and counseling.

Meagan K. on ContractsCounsel
View Meagan
Member Since:
May 23, 2023

Meagan K.

Free Consultation
Charlottesville, Virginia
9 Yrs Experience
Licensed in VA
George Mason University School of Law

Meagan Kirchner has nearly a decade of experience in Immigration law. She has significant experience working on H-2B immigration matters. Her practice also focuses on business immigration, particularly representing corporate clients pursuing H, E3, TN, O, and L nonimmigrant classifications, as well as lawful permanent residence (EB-1A, NIW, EB-1C). Meagan has represented clients in a variety of industries including agriculture, hospitality, healthcare, IT, engineering, and finance. Meagan has a Bachelor of Science degree in Business from George Mason University and a Juris Doctor degree from the George Mason University School of Law. She is licensed to practice law in Virginia and is also a member of the American Immigration Lawyers Association (AILA).

David L. on ContractsCounsel
View David
Member Since:
July 11, 2023

David L.

Managing Member
Free Consultation
El Paso Texas
25 Yrs Experience
Licensed in NM, TX
Texas Tech University School of Law

Experienced real estate, business, and tax practitioner, representing start up and established businesses with formation, contracts, and operational issues.

Barbara M. on ContractsCounsel
View Barbara
Member Since:
May 23, 2023

Barbara M.

Free Consultation
32 Yrs Experience
Licensed in MA, NY
Albany Law School

In 1991, Barbara Markessinis graduated cum laude from Albany Law School in Albany, New York. Shortly thereafter, Barbara was admitted to practice in New York State and in the United States District Court for the Northern District of New York. In 1997, Barbara was admitted to practice in Massachusetts and in April of 2009 she was admitted to the United States District Court for the District of Massachusetts. After graduating from law school, Barbara worked in private practice in the Albany, New York area and for Sneeringer, Monahan, Provost & Redgrave Title Agency, Inc. before joining the New York State Division for Youth and the New York State Attorney General's Real Property Bureau as a Senior Attorney. During her tenure with the Division for Youth, Attorney Markessinis found herself in Manhattan Family Court in front of Judge Judy! A career highlight for sure! After admission to the Massachusetts Bar, Barbara returned to private practice in the Berkshires and eventually started her own firm in June of 2006. Attorney Markessinis offers legal services in elder law, estate planning and administration/probate, family law, limited assistance representation (LAR), real estate and landlord tenant disputes. In 2016, after a family member found themselves in need of long term care, Attorney Markessinis’ launched her elder law practice. Through this experience, Attorney Markessinis discovered that the process of selecting a long term care facility and/or caregiver, applying for MassHealth and preserving an applicant’s assets are serious issues faced by many people every day. This area of the law is Barbara’s passion and she offers her legal services to families who find themselves in need of an elder law attorney. Attorney Markessinis is part of the Volunteer Legal Clinic in the Berkshire Probate & Family Court and has provided limited free legal services to patients and families at Moments House cancer support center in Pittsfield. She currently serves as a Hearing Committee Member for the MA Board of Bar Overseers and is a member of the Berkshire County and Massachusetts Bar Associations, Berkshire County Estate Planning Council (BCEPC). Attorney Markessinis is also the host of WUPE Talks Law. She also serves on the Town of Hancock Zoning Board of Appeals and Planning Board.

Find the best lawyer for your project

Browse Lawyers Now
other helpful articles
Learn About Contracts

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer


Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city