RSU Calculator

How RSUs and their taxes work

Restricted Stock Units (RSUs) are company shares granted to you that vest over time (commonly 4 years). When a batch vests, its value counts as ordinary income that year — so your employer typically withholds taxes, often by selling some shares. What's left is yours to keep or sell. This tool estimates the gross value as it vests, the tax withheld, and what you net.

How this is calculated

We vest your shares evenly across the vesting period. Each year's value uses the share price, optionally grown by your expected annual growth rate. Tax withheld is estimated as your combined marginal rate applied to each year's vested value (RSUs are taxed as income at vest). Actual withholding, share-price moves, and your real tax bracket will differ — treat this as a planning estimate, not tax advice.

Educational estimate, not tax or investment advice — see our disclaimer.

How RSUs are taxed at vesting

Restricted stock units (RSUs) usually have no immediate value when they are first granted. The tax event typically happens at vesting, when the shares actually become yours. At that moment, the market value of the vested shares is generally treated as ordinary income — much like a cash bonus — and is reported as part of your wages. Your employer often withholds taxes at that point, just as it would on regular pay.

After vesting, anything that happens to the share price affects you as an investor. If you keep the shares and they rise in value before you sell, that later increase is typically taxed as a capital gain. How long you hold can matter for the rate that applies. Because rules and rates change, treat any figure here as an estimate and confirm specifics with a qualified tax professional.

An RSU vesting example

Imagine you receive a grant of 4,000 RSUs that vests evenly over four years — 1,000 shares each year. Suppose the share price is $50 on your first vesting date. That year, 1,000 shares vest, producing about $50,000 of ordinary income added to your wages. If your combined tax and withholding rate is around 30%, roughly $15,000 is set aside for taxes, leaving you with about $35,000 of value in shares (before any later price moves). Over the full four years, your gross RSU income depends on the share price at each vesting date, which can be higher or lower than $50.

Sell-to-cover and what to do with vested shares

Many companies use sell-to-cover, where a portion of the newly vested shares is automatically sold to pay the withholding taxes. In the example above, that might mean selling roughly 300 of the 1,000 vested shares to cover the estimated $15,000, leaving you holding the rest. A simple way to think about it: treat each vesting like a cash bonus that happens to arrive as stock. You can keep the shares, sell some, or sell all and redirect the proceeds toward goals like an emergency fund, paying down debt, or long-term investing.

Concentration risk and diversification

Holding a large amount of your employer's stock can quietly create concentration risk. Your paycheck already depends on the company, so tying a big share of your savings to the same stock means a single bad stretch could hit both your income and your investments at once. A common, general approach is to spread savings across many holdings rather than one, so no single company drives your financial future. To see how steady, diversified investing can compound over time, you can experiment with our compound interest calculator.

Common mistakes to avoid

• Assuming withholding fully covers your tax. Default withholding rates may be lower than your actual rate, which can leave a surprise balance at tax time.
• Holding everything by default. Keeping every vested share simply because selling feels like a decision can leave you heavily concentrated in one stock.
• Ignoring vesting dates. Forgetting when shares vest makes it harder to plan cash flow, taxes, and any sell-to-cover activity.
• Overlooking the bigger picture. RSUs are one piece of your finances; mapping them into long-term goals — such as the targets in our FIRE calculator — helps you use them intentionally.

These results are estimates for educational purposes and are not tax or investment advice.