Your RSUs show up on your W-2. Then, when you sell, they show up again on a 1099-B. It’s easy to conclude you’re paying tax on the same shares twice.
In most cases, you aren’t. Vesting creates compensation income, and any price change after vesting creates a capital gain or loss. Those are two different tax events, not two taxes on the same dollars.
The short answer: RSUs generally are not taxed twice on the same income. Their fair market value is taxed as compensation when the shares vest. That same value becomes your cost basis in the shares. If you later sell for more or less than that basis, only the difference is a capital gain or loss.
Understanding that is only half the job, though. The bigger risk for most high earners isn’t double taxation. It’s a year of quarterly vests, automatic withholding, and growing positions that nobody projects until the return is prepared.
Why it looks like RSUs are taxed twice
The confusion makes sense once you look at what an employee actually sees over the life of an RSU grant:
- Your RSUs vest.
- Some shares are withheld to cover taxes.
- The RSU income appears on your W-2.
- Months or years later, you sell the shares.
- The sale appears on a Form 1099-B from your brokerage.
Taxes and tax forms at several stages can easily look like the same equity being taxed again and again. But each form reports something different.
Your W-2 generally reports the value of the shares recognized as compensation when they vested. Your 1099-B generally reports the sale of the shares. The link between the two is your cost basis, which determines how much additional gain or loss happened after vesting. Get the basis right, and the same value isn’t counted twice.
The first RSU tax event happens when your shares vest
RSUs are generally taxed as ordinary compensation income when they vest and you receive the shares. The taxable amount is the fair market value of the shares on the vesting date. It’s subject to federal income tax, Social Security and Medicare taxes, and state income tax where applicable.
You owe tax at vest even if you keep the shares
A common reaction is: “I haven’t sold anything, so why do I owe tax?”
The answer is that RSUs are part of your pay. Your employer chose to pay you in shares instead of cash, and vesting is generally the point at which that pay becomes taxable wages. Choosing to hold the shares doesn’t postpone the compensation-income event, just as leaving a cash bonus in your bank account doesn’t postpone tax on the bonus.
Why your employer may withhold shares at vest
Because RSU income is wages, your employer has to withhold taxes on it. Many companies do this by holding back some of the vested shares, or selling a portion of them, to cover payroll-tax withholding.
For example, if 1,000 shares vest, you might see only 600 to 700 shares arrive in your brokerage account. The rest were used to pay the withholding. Those withheld shares were still part of your compensation, which is why the full 1,000-share value appears on your W-2. For more on how this works, see our guide to RSU tax withholding.
Selling reports a capital gain or loss after vesting
Once your shares vest, you own them like any other stock. From that point on, you’re no longer earning compensation. You’re holding an investment.
Your tax basis in the shares generally equals the value you already recognized as compensation. If the stock rises or falls after vesting, the difference between that basis and your sale price creates a capital gain or loss:
- Stock goes up: you have a capital gain on the increase only.
- Stock goes down: you have a capital loss, which can offset capital gains. Subject to wash-sale and other applicable rules, a net capital loss can generally offset up to $3,000 of other income per year, or $1,500 if married filing separately, with unused losses carried forward.
- Stock stays flat: you have little or no gain or loss.
How long you hold matters too. Shares held more than one year after vesting generally qualify for long-term capital gains rates. Shares sold within a year are generally short-term, taxed at ordinary income rates. Either way, the clock starts at vesting, not at the original grant date.
Your RSU cost basis is what prevents the same value from being taxed again
Cost basis is the piece that ties the two tax events together. Conceptually, it works like this:
- At vest: the value taxed as compensation becomes your cost basis.
- At sale: sale price minus cost basis equals your capital gain or loss.
Here’s a simple example. Say 650 shares land in your account after withholding, and they vested at $100 per share. That $65,000 was included in your W-2 compensation, so your cost basis in those shares is $65,000. The value of shares used for withholding is also part of your compensation, but those are separate shares from the 650 you still hold.
A year and a half later, you sell all 650 shares at $120. Your proceeds are $78,000. Subtract your $65,000 basis, and your taxable long-term gain is $13,000. The original $65,000 isn’t taxed again.
Without the correct basis, your return could treat the full $78,000 as gain. That’s where real double taxation can happen: not because the tax code requires it, but because the basis was reported or entered incorrectly.
Why your 1099-B can make the gain look wrong
Brokerage forms for employee stock often show a cost basis of $0, leave it blank, or mark it as not reported to the IRS. Tax software that pulls the 1099-B as-is can then overstate your gain.
Before filing, compare these records:
- Vesting records from your equity platform
- W-2 compensation, including any equity income noted in Box 14
- Brokerage transaction history
- Form 1099-B
- Supplemental equity statements, when your broker provides them
- The cost basis reported for each sale
If the reported basis is wrong, your CPA can correct it using the Form 8949 instructions. The treatment depends on whether the broker reported basis to the IRS: some transactions require the reported basis plus an adjustment, while others use the correct basis directly. Do not both replace the basis and apply the same correction again.
RSU withholding can still leave you with a tax bill
You can understand both tax events perfectly and still owe much more than expected in April. The reason is that the tax withheld at vest may not match your actual tax liability.
Compare withholding with your actual marginal tax rate
RSU income is usually treated as supplemental wages. Employers often withhold federal income tax at a flat supplemental rate, commonly 22% on supplemental wages up to $1 million in a year when the flat-rate method is available. The portion above $1 million is subject to 37% federal withholding.
For high earners, that flat rate can fall short. If your salary, bonus, and RSU income push you into the 32%, 35%, or 37% brackets, the gap between 22% withheld and your marginal rate becomes a balance due. State withholding can fall short the same way. Higher income can also raise your modified adjusted gross income (MAGI), which can trigger other taxes such as the Net Investment Income Tax. We explain more in why RSUs are taxed so high.
Don’t wait until April to find out whether withholding was enough
Instead of waiting for your return, project the year while you can still act. Pull together:
- Base salary
- Bonus
- RSUs already vested
- Remaining RSUs scheduled to vest
- Other equity compensation
- Investment income
- Capital gains and losses
- Other material income
- Federal and state taxes already withheld
Then estimate your full-year tax liability. In August, September, or October, the useful question isn’t “How much did my employer withhold?” It’s “Based on everything expected to happen this year, am I on track?”
If you’re behind, you can raise payroll withholding, make an estimated payment, or time other decisions, such as when to sell shares or harvest losses. Our tax strategies for high-income W-2 employees cover more options.
How Nino helps you plan RSU taxes before they become a surprise
For most people with RSUs, double taxation isn’t the real problem. Lack of visibility is. Shares vest every quarter, withholding happens automatically, positions grow, and no one connects those events to your final tax bill until your return is being prepared.
Nino keeps that picture current all year. Your advisor and CPA work together, so they know your vesting schedule and update your tax projection as your compensation changes. They connect investment decisions, like when to sell shares, with their tax consequences. And they flag actions while there’s still time to take them, not after the year has closed.
If you’re weighing how different planning services handle equity compensation, our look at Facet alternatives is a useful place to start.
Your RSUs shouldn’t first become part of your tax strategy when they appear on your W-2.
Talk with a CPA and Financial Planner about your equity and taxes, or compare Advisor Plans.
RSU timing can differ for deferred-settlement and private-company awards. Tax treatment depends on your award terms, filing status, and state; confirm those details with your tax professional.