RSU Taxes Explained: What Every Bay Area Tech Employee Needs to Know

Getting a job offer with restricted stock units feels like a win — until the first vest date hits and a chunk of those shares disappear before they ever land in your brokerage account. If you work at Google, Apple, Meta, Microsoft, Salesforce, Nvidia, or a well-funded Bay Area startup, RSUs are probably a meaningful part of your compensation. They are also one of the most misunderstood pieces of the tax code among the people who receive them.

This guide breaks down exactly how RSUs are taxed at both the federal and California state level, why your paycheck withholding is almost never enough, and what to actually do about it.

What RSUs Are — and Why They're Taxed Differently Than Stock Options

A restricted stock unit is a promise from your employer to give you shares of company stock once certain conditions are met — usually a vesting schedule tied to your tenure, sometimes layered with performance conditions. Unlike stock options, which give you the right to buy shares at a fixed strike price, RSUs simply convert into real shares you own once they vest. There's no purchase decision, no strike price, and no choice about whether to "exercise."

That simplicity is exactly why RSUs create a tax event you can't defer. The moment your RSUs vest, the IRS treats the value of those shares as ordinary income — as if your employer handed you a cash bonus and you used it to buy company stock on the spot.

The Vesting Date Is the Taxable Event

Say you have 100 RSUs that vest when your stock is trading at $150 per share. On that vest date, you've received $15,000 of taxable compensation — full stop, regardless of whether you sell the shares or hold them. This amount shows up on your W-2 as ordinary wages, right alongside your salary and any cash bonus.

This is the single most important thing to understand about RSU taxation: the tax bill is triggered by vesting, not by selling. Many employees mistakenly believe that if they don't sell their shares, they haven't "realized" anything taxable. That's true for the type of gain that happens after vesting, but the value at vesting itself is taxed no matter what you do next.

Federal Tax Treatment of RSU Income

Once vested, your RSU income is taxed as ordinary wage income at your marginal federal tax rate. For the 2026 tax year, federal brackets run from 10% up to 37%, with the top rate applying above $640,600 of taxable income for single filers and $768,700 for married couples filing jointly. Most Bay Area tech professionals with meaningful RSU income land somewhere in the 24% to 35% marginal brackets — and a heavy vesting year can easily push you into a higher bracket than your base salary alone would suggest.

This is where a lot of people get surprised. Your base salary might sit comfortably in the 24% bracket, but a large RSU vest — especially if you're also vesting quarterly instead of annually — can stack on top of that income and push your last dollars earned into the 32% or 35% bracket for that year.

California's Layer on Top

California does not have a separate capital gains tax rate — it taxes long-term and short-term gains the same as ordinary income, at rates up to 13.3% for the highest earners (that top figure includes the 1% mental health services surcharge that applies to taxable income above $1 million). For most tech employees in the Bay Area, RSU income is taxed at California's 9.3% or higher marginal bracket on top of the federal rate.

Combine the two, and a tech employee at the top of their bracket can see a combined marginal rate on RSU income approaching 48% to 50% between federal and California tax. That's before accounting for the Additional Medicare Tax or the Net Investment Income Tax discussed below.

The Withholding Trap

Here's the part that catches almost everyone off guard: the IRS requires employers to withhold on supplemental wages — which includes RSU vesting — at a flat statutory rate, not your actual marginal rate. Federal withholding on supplemental wages is 22% for amounts up to $1 million in a calendar year, and 37% above that threshold. California requires a flat 10.23% supplemental withholding rate on stock compensation.

Add those together and your RSU vest gets withheld at roughly 32% combined (22% federal + 10.23% state) by default. If your actual marginal rate is 35% federal and 9.3%–13.3% state, you can end up under-withheld by ten percentage points or more on every vest — and that gap compounds every quarter you vest without adjusting for it.

This is why so many tech employees are blindsided in April: their employer withheld "some" tax on their RSUs, so it felt handled, but the flat withholding rate simply didn't match their actual bracket. The result is a tax bill — sometimes with an underpayment penalty attached — that could have been avoided with a mid-year adjustment to withholding or a quarterly estimated tax payment.

What Happens When You Sell RSU Shares Later

Once your RSUs vest and you own the shares outright, any further price movement is treated as a capital gain or loss, separate from the ordinary income you already paid tax on at vesting. Your cost basis for this purpose is the fair market value of the shares on the vest date — the same value that was already taxed as income.

If you sell immediately at vesting, there's typically little to no additional gain or loss beyond minor price movement between the vest and the trade execution. If you hold the shares and they appreciate, that additional gain is taxed as a capital gain — short-term (taxed as ordinary income) if sold within a year of vesting, or long-term if held more than a year. For 2026, long-term capital gains rates are 0%, 15%, or 20% federally depending on your total taxable income, with the 20% rate applying above roughly $545,500 for single filers and $613,700 for married couples filing jointly.

Don't Forget the Net Investment Income Tax and Additional Medicare Tax

Two often-overlooked federal surtaxes apply to high-income tech employees. The Additional Medicare Tax adds 0.9% on wage income above $200,000 for single filers ($250,000 married filing jointly) — this applies to your RSU income directly, since it's treated as wages. The Net Investment Income Tax adds another 3.8% on investment income, including capital gains from selling vested shares, once your modified adjusted gross income crosses those same thresholds. Neither of these is adjusted for inflation, so more tech employees get caught by them every year as compensation grows.

Where RSUs and AMT Intersect

RSUs themselves don't typically trigger Alternative Minimum Tax issues the way incentive stock options can — but a large RSU vest can push your income into a range where AMT calculations start to matter for other parts of your return, particularly if you're also holding ISOs or have significant state tax deductions being limited. It's worth running an AMT projection in any year where your RSU income spikes meaningfully.

Closing the Withholding Gap: Estimated Payments and Safe Harbor

If you know your employer's flat withholding rate won't cover your actual liability, you have two main tools to avoid an underpayment penalty: adjusting your W-4 to withhold additional tax from your regular paycheck, or making quarterly estimated tax payments directly to the IRS and California Franchise Tax Board. The IRS "safe harbor" rules give you a target to plan around — generally, you avoid a penalty if you pay in at least 90% of your current year's tax liability, or 100% of last year's liability (110% if your prior-year adjusted gross income was above $150,000). For tech employees with rising RSU income year over year, the 110% prior-year safe harbor is often the easiest number to plan around, since it's known at the start of the year rather than requiring a running projection.

Multi-State Complications for Mobile Tech Employees

Remote work and relocations have added a layer of complexity that didn't exist a decade ago: if you vested RSUs while living in California but later moved to a no-income-tax state like Washington or Texas, California may still claim a share of that income under its rules for compensation earned while you were a resident, particularly for equity granted during your California residency even if it vests after you've moved. This is a genuinely complicated area of California tax law, and it's worth a specific review with a tax professional any time a relocation and a vesting schedule overlap.

Common RSU Tax Mistakes We See

The most frequent mistakes we encounter with Bay Area tech clients: assuming payroll withholding covers the full tax liability; not adjusting withholding or making estimated payments after a promotion or a large vesting quarter; holding concentrated stock too long out of loyalty or inertia rather than a deliberate diversification strategy; failing to coordinate RSU sell decisions with other income events, like a spouse's bonus or a Roth conversion, that land in the same tax year; and not revisiting a relocation's effect on California tax obligations tied to previously granted equity.

Working With Your CPA and Advisor Together

RSU tax planning works best when your financial advisor and your CPA or tax preparer are looking at the same picture rather than working from partial information. Your advisor can model sell timing, diversification targets, and withholding adjustments throughout the year; your CPA handles the filing and can flag issues like disqualifying dispositions or multi-state complications after the fact. Coordinating the two — sharing vesting schedules and sell decisions as they happen, rather than only at tax time — is one of the simplest ways to avoid the kind of surprises this guide is meant to help you get ahead of.

Building a Real Strategy Around Your RSUs

RSU tax planning isn't about avoiding tax — it's about not being surprised by it, and about making deliberate decisions on sell timing, withholding adjustments, and diversification that fit your full financial picture. That means modeling your expected marginal rate before each major vesting event, adjusting your W-4 or making quarterly estimated payments to close the withholding gap, and deciding — ahead of time, not reactively — how much company stock you're comfortable holding versus converting into a diversified portfolio.

If you're vesting RSUs at a Bay Area tech company and want a clear plan instead of an April surprise, that's exactly what we help clients build. Schedule a free consultation and we'll walk through your specific vesting schedule, withholding, and tax situation together.

Vesting Schedules Aren't One-Size-Fits-All

It's worth noting that vesting cadence varies meaningfully across employers, and that cadence directly affects how often you face this tax event. Some large public tech companies vest quarterly over four years; others front-load a heavier percentage into the first year or two to improve retention economics; some structure vesting as an annual cliff rather than a smooth monthly schedule. The more frequently you vest, the more often you face this withholding gap — which makes it even more important to know your specific schedule rather than assuming a generic "25% a year" pattern applies to your grant.

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