RSU’s Are Not a Bonus
When a vest date hits and shares land in your account, it can feel like found money. A reward for staying, something extra on top of your regular pay.
Restricted stock units are compensation, though, and the IRS treats them exactly that way. On the day they vest, the full value is taxable as ordinary income regardless of whether you sell the shares or hold them. For most of our clients, that means being taxed at their highest marginal rate on stock they may not even be thinking of as income yet.
There is also a question of what to do with the shares once they vest. Many people hold them without really deciding to. It feels like the cautious move, a sign of loyalty or confidence in the company. The problem is that your paycheck already depends on that same company performing well, and layering equity on top of that creates a level of concentration that tends to grow quietly until it becomes hard to ignore.
What this means in practice
The withholding on RSU income is usually done at a flat supplemental rate, which may be lower than your actual marginal rate. If your total income for the year puts you in a higher bracket, you could owe additional tax at filing, and it is worth reviewing that before the end of the year.
Selling shares after they vest is not a sign of disloyalty. It is often the more sensible approach. If you want continued exposure to the company, you can hold that position intentionally as part of a broader portfolio rather than by default.
If you have several vest dates coming up over the next year or two, there is real planning value in thinking about them together rather than one at a time. Coordinating those events with the rest of your income picture can have a meaningful impact on your tax outcome.
RSUs can represent a significant portion of total compensation for a lot of the families we work with. The ones who tend to handle them well are the ones who stop treating each vest as a surprise and start treating it as something worth planning around.
If equity compensation is part of your financial picture, we are happy to walk through what it means for your specific situation. Schedule a call here.
