When an RSU becomes taxable compensation

A restricted stock unit is generally an employer’s unsecured promise to deliver shares or cash after a vesting condition is met. A grant normally does not transfer stock to the employee, so it ordinarily is not the federal income-tax event. When the award settles in shares, the fair market value of the stock transferred is generally included in gross income; a cash-settled award generally enters income when paid. The compensation appears in Form W-2 box 1 rather than arriving as a tax-free investment.

This calculator assumes vesting and settlement occur together in 2026 and that the employee paid nothing for the shares. If a plan delays settlement, applies a nonqualified deferred-compensation special timing rule, permits an employee payment, or operates across countries, the income and FICA dates can differ. Use the employer’s award agreement and payroll statement before treating the calculator date as final.

What the settlement value feeds

Federal supplemental wage withholding

The 22% rate is an optional withholding rate, not the employee’s tax bracket. When separately identified supplemental wages are no more than $1 million and the employer withheld federal income tax from regular wages in the current or prior year, the employer may use the flat method or an aggregate method. The calculator’s custom option provides a transparent placeholder for an employer-projected aggregate rate; it does not reproduce an entire paycheck without the regular-pay and W-4 facts.

Once supplemental wages from the employer exceed $1 million during the calendar year, the excess receives mandatory withholding at the highest individual rate, 37% for 2026. The calculator splits a vest that crosses the line. Related businesses under common control can have to combine supplemental wages, so the prior amount may include more than one payroll entity.

FICA timing and wage-base coordination

Equity compensation is generally wages for Social Security and Medicare purposes. RSUs can be treated as nonqualified deferred compensation, with FICA wages determined under the special timing rule at the later of service performance or when the substantial risk of forfeiture lapses. That can be the vest date even if share delivery occurs later. The result may therefore differ from the box 1 income timing for a delayed-settlement plan.

For the standard same-day case modeled here, the 2026 Social Security tax uses the remaining part of the $184,500 wage base. If prior Social Security wages are $150,000 and RSU compensation is $40,000, only $34,500 receives the 6.2% employee rate. Regular Medicare applies to all $40,000. With prior same-employer Medicare wages of $185,000, the last $25,000 of this vest exceeds the $200,000 employer withholding threshold and receives 0.9% Additional Medicare withholding.

A second employer does not tell this employer to stop Social Security withholding. Excess employee Social Security tax caused by multiple employers is generally reconciled on the federal return. Additional Medicare works differently: the employee computes final liability using filing status, wages, and self-employment compensation, then credits the amount withheld.

Why whole-share withholding creates a rounding difference

Share-withholding and sell-to-cover plans cannot always deliver a fraction of a share for every tax dollar. If estimated taxes require 97.3 shares, the plan may withhold or sell 98 shares. At an $80 settlement price, those shares represent $7,840, which is $56 more than a $7,784 tax requirement. Depending on the plan and broker, a cash residual may return through payroll, remain for fees, or be handled under a stated rounding policy. The calculator labels the difference rather than silently treating it as tax.

Actual execution prices can move between payroll valuation and market sale. A sell-to-cover trade also can produce a small capital gain or loss when its sale price differs from the share’s tax basis. Transaction fees affect the disposition. Review both the equity payroll statement and Form 1099-B instead of assuming that withheld shares disappear without a reportable sale.

Cost basis after the vest

The compensation already included in wages generally becomes part of basis in the shares received. For a conventional award with no employee payment, each share begins with basis equal to the fair market value used for W-2 income. A later sale then compares proceeds with this basis. If a broker reports zero or omits basis on Form 1099-B, entering zero again on the tax return can tax the same value twice—once as wages and again as capital gain.

The calculator shows basis for the net shares at the entered fair market value. Preserve the total settlement basis as well, including shares sold or withheld for taxes, because those shares may have their own same-day disposition. Holding period generally starts around the share-transfer event, not the grant date. Corporate actions, fractional cash, and non-U.S. sourcing require a more detailed lot record.

Worked settlement example

An employee settles 500 shares at $80, producing $40,000 of W-2 compensation. Prior employer supplemental wages are $100,000, so the entire award remains below the $1 million boundary and the flat federal estimate is $8,800. Prior Social Security wages are $150,000, leaving $34,500 of base; employee Social Security tax is $2,139. Regular Medicare is $580. Prior Medicare wages are $185,000, so $25,000 of the award receives the Additional Medicare withholding rate, or $225. A 5% state estimate adds $2,000.

Total estimated withholding is $13,744. At $80 per share, 171.8 shares are needed, so a whole-share plan would use 172 shares. The estimated net delivery is 328 shares, with $16 of value above the modeled tax requirement. Those 328 shares carry an estimated $26,240 basis at settlement. Final federal income tax can still be higher or lower than the $8,800 withheld.

Using the result in a full-year tax plan

Compare projected total tax with year-to-date withholding from salary, prior equity, bonuses, and estimated payments. A large vest can push ordinary income into higher brackets, change credit phaseouts, increase net investment income interactions on later stock sales, or reduce deductions tied to AGI. Selling additional shares may fund the tax difference but also creates a capital transaction.

The linked page addresses return-level income tax; this calculator preserves the payroll buckets and net-share mechanics. Neither substitutes for employer payroll records or the final Forms W-2 and 1099-B.

Frequently asked questions