RSU Tax Calculator
Calculate tax liabilities on Restricted Stock Unit (RSU) vests, sell-to-cover shares, and avoid surprise April underwithholding gaps.
Employers are legally required to withhold supplemental wages at only 22% federal. If your marginal bracket is 35%, you will owe an additional $5,850 when filing your Form 1040 in April. Set cash aside or submit quarterly estimated tax payments.
Navigating Equity Compensation & RSU Taxation
Restricted Stock Units make up a massive percentage of total compensation for software engineers and corporate leaders. Because RSUs are taxed as ordinary income upon vesting, managing your withholding percentages and post-vest liquidation timing is vital to avoid unexpected IRS underpayment penalties.
Tech Career Applications
- ✓Big Tech & FAANG Compensation Planning
Accurately budget for quarterly RSU vesting tranches at Meta, Google, Apple, Amazon, Microsoft, Nvidia, and high-growth pre-IPO unicorns.
- ✓Preventing April Surprise Underwithholding Bills
Detect the dangerous tax gap when your employer withholds at the mandatory 22% supplemental rate while your actual marginal tax bracket is 35% or 37%.
- ✓Sell Immediately vs Hold for Long-Term Gains
Determine whether to sell shares upon vest date or hold for over one year to qualify for favorable 20% federal long-term capital gains tax rates.
- ✓State Income Tax Optimization (CA, WA, NY, TX)
Compare tax obligations across high-tax states like California and New York versus zero-income tax states like Washington and Texas.
Key Capabilities
Automated Sell-to-Cover Calculation
Computes the precise quantity of shares withheld by brokerage custodians (E*TRADE, Fidelity, Schwab) to cover initial tax liabilities.
Surprise Tax Gap Warning Alert
Highlights the exact dollar shortfall between statutory 22% employer withholdings and your true IRS Form 1040 bracket liability.
Cost Basis & Subsequent Capital Gains
Tracks Fair Market Value (FMV) at vest as your permanent cost basis to prevent double-taxation errors when selling shares.
State-Specific Tax Schedules
Includes real-world tax brackets for major tech hubs including California, New York, Washington, Massachusetts, and Texas.
Frequently Asked Questions
How are RSUs taxed when they vest?
When Restricted Stock Units (RSUs) vest, the entire market value of the shares (Fair Market Value * number of shares) is considered ordinary taxable income, exactly like a cash bonus. It is subject to federal income tax, state income tax, and FICA payroll taxes (Social Security and Medicare).
Why do tech employees often owe a huge tax bill on RSUs?
The IRS mandates that employers withhold federal tax on supplemental wages under $1 million at a flat rate of only 22%. However, most software engineers and tech professionals earn total compensation that places them in the 32%, 35%, or 37% tax bracket. The 10% to 15% difference must be paid out of pocket in April unless quarterly estimated taxes are filed.
What is 'Sell to Cover'?
Sell to Cover is an automated feature where your company's brokerage sells a portion of your newly vested shares on the open market on vest day to generate the cash required to pay your tax withholding. The remaining shares are deposited into your brokerage account.
What is the cost basis of my RSU shares?
Your cost basis is the Fair Market Value (FMV) of the stock on the date it vests. When you later sell those shares, you only pay capital gains tax on the difference between the sale price and that vest-day cost basis.
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