Disclaimer: This article has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. This material provides general information only. OnePoint BFG does not offer legal or tax advice. Please contact legal counsel or your tax advisor to recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. Circular 230 notice: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.
Restricted Stock Units (RSUs) can feel simple at first glance — shares vest, the stock shows up in your account, and you decide whether to sell or hold. But beneath that seemingly straightforward moment sits a far more complex tax structure. For many public company employees, tech professionals, and executives, the hidden challenge is not deciding whether your vested RSUs fit your broader financial planning strategy — it’s ensuring your tax withholding actually matches your real tax liability.
In other words, the real decision is not just sell or hold. It’s whether your RSU tax strategy aligns with your income, your cash flow, and the risks that come with accumulating increasingly substantial amounts of company stock. Without the right tax planning, even a year of strong equity compensation can end with an unexpected tax bill — a surprise that is entirely preventable with a coordinated approach to RSU management, withholding, and diversification.
RSUs are one of the most powerful tools in modern equity compensation, offering employees a direct pathway to build wealth through stock units, capital gains, and future growth potential. But they can also create complexity: withheld taxes often fall short, companies rarely tailor withholding to individual circumstances, and your compensation may be far more “lumpy” than traditional wage income. This is where strategic planning turns confusion into clarity — and were having a structured RSU strategy can materially improve both your tax outcomes and long-term wealth.
When RSUs vest, they instantly become taxable income — not when you sell them, but at the vesting moment itself. That income is determined by the fair market value of your vested shares on the vest date. Your employer sends that value to your W2 as wage income.
This is important for three reasons:
RSU income is treated like salary or bonus income. It stacks directly on top of your regular wages, your bonus, and any other compensation you earn throughout the year. For many public company employees — especially those in high-growth firms — RSU income is often the largest component of taxable earnings.
The tax event at vesting is separate from the investing decision after vesting. After the RSUs vest, any future stock price movement becomes a capital gain or capital loss issue — an entirely separate taxation layer.
Your company’s default tax withholding likely doesn’t match your real tax rate. Most companies withhold at the IRS “supplemental wage” flat rate, not your actual marginal rate. That mismatch is ground zero for the withholding gap.
This combination — wage taxation at vesting plus investment taxation after vesting — makes RSUs unique among types of stock options or equity compensation. It also means your RSU strategy must address both tax obligations and investment goals.
The vast majority of employers withhold taxes on RSUs using the IRS supplemental wage flat rate — 22% for most income levels, and 37% above $1 million in supplemental income. For high-income earners, executives, and many tech employees, this can dramatically under-withhold.
And that gap matters.
If your real marginal (average) tax rate is closer to 32%, 35%, or even 37%, but your company only withholds 22%, you are effectively borrowing money from the IRS until you repay it in April — with the added risk of penalties if you underpay during the year.
Three factors widen the withholding gap:
State taxes like Idaho’s 5.3% rate are not always fully included.
Medicare surtax (0.9% above certain income thresholds) is frequently understated.
Lumpy vesting schedules — especially when grants from prior years overlap — can push your RSU income far higher than you expect.
This is why RSU withholding should be viewed not as a portfolio management problem, but as a tax planning problem. Fixing requires coordination, not guesswork.
Sell-to-cover is the most common default RSU tax method. It automatically sells enough shares at vesting to cover the employer’s required withholding. It’s convenient, simple, and avoids needing to pay the withholding amount out of pocket.
But there are limits to what sell-to-cover actually accomplishes:
It only covers the minimum amount your employer is required to withhold — not your full tax obligation.
It does not account for your true marginal or top tax rate.
It gives the impression that taxes are fully handled when they usually are not.
In other words, sell-to-cover is a cash flow tool, not a tax strategy. It does not absolve you from responsibility for the withholding gap, nor does it determine whether you should keep or sell your vested shares. Selling-to-cover is often the right operational choice, but it shouldn’t be mistaken for a strategic financial goal.
Holding your vested shares means you’re choosing to increase your exposure to a single company — the same company that already provides your salary, bonus, career trajectory, and existing equity compensation.
That isn’t always wrong — but it must be intentional.
Holding shares becomes a strategic decision only when it aligns with:
Your diversification plan
Your concentration risk limits
Your long-term personal financial goals
Your conviction in the stock itself, independent of the fact that your employer granted it to you
The clearest framing question is:
“If I had the after-tax value of these vested RSUs in cash today, would I buy this company’s stock?”
If the honest answer is “no,” then holding is likely inertia, not strategy.
Remember: future gains or losses on held shares fall under capital gains tax rules, but that layer only appears after the wage tax event at vesting has already locked in.
When evaluating your RSU strategy, use four key filters to bring clarity to the decision:
Does your withholding reflect your real marginal tax rate? If not, will you adjust your payroll withholding, make estimated payments, or reserve cash?
If there is a withholding gap, can your cash flow comfortably cover it? Or will you be forced to sell shares later — possibly at a less ideal price?
Is holding shares pushing you past your diversification limits? Is your exposure to company stock already high through stock options, ESPP programs, or future RSU grants?
Do you have a consistent, repeatable policy for every vest — or are you deciding emotionally based on recent price swings?
A consistent system almost always outperforms case-by-case emotional decisions.
Avoiding an April shock comes down to planning throughout the year, not reacting after the fact. That includes:
Aligning withholding with your actual tax bracket by adjusting Form W4 or making estimated payments
Tracking your vesting schedule, especially if multiple grants stack in the same quarter
Prefunding tax reserves if RSUs represent a major portion of your income
Coordinating with your CPA and financial advisor so that RSU income is fully reflected in your broader tax strategy
When RSUs are integrated into a year-round tax plan, tax filing becomes a formality — not a financial event.
Even employees who understand the tax mechanics of RSUs often run into problems during tax filing. The most common mistakes include:
Double-counting RSU income because the W2 already captured it
Incorrect cost basis reporting, especially if the brokerage defaults to a value that does not reflect the vesting price
Assuming the 1099B is correct — RSU basis reporting is frequently wrong and must be checked
Not keeping documentation of vest dates, sale confirmations, and grant details
Clean reporting prevents unnecessary tax overpayments.
Your RSU plan should not be improvised each year; it should operate as part of your broader wealth strategy. A strong RSU management plan includes:
A defined percentage you will sell at each vest for diversification
A coordinated strategy across RSUs, stock options, and ESPP participation
Clear direction for RSU proceeds — whether that’s investing, debt reduction, tax reserves, or cash flow planning
Annual reviews as grants change, income evolves, or financial goals shift
Consistency is the backbone of long-term RSU success.
Because RSUs are treated as wage income at vesting, not investment income.
No. Sell-to-cover only sells the minimum number of shares required to meet withholding requirements.
Because employers use a flat supplemental rate, not your personal marginal rate.
Increase W4 withholding, set aside cash, or make quarterly estimated tax payments.
Using the brokerage’s default cost basis without verification.
At OnePoint, we translate your vesting schedule into a clear, year-round tax and planning strategy. We:
Integrate RSU income into your broader tax picture
Build a diversified sell/hold policy tailored to your goals
Coordinate estimated payments, payroll withholding, and cost basis reporting
Ensure RSUs support your long-term financial independence — not undermine it with tax surprises
If you’re ready to turn your RSU strategy into a coordinated plan rather than a guessing game, schedule a complimentary consultation. We’ll help you manage your equity compensation with clarity, confidence, and purpose.
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This communication has been provided for informational purposes only and should not be considered as investment, legal or tax advice or as a recommendation. This material provides general information only. OnePoint BFG does not offer legal or tax advice. Please contact legal counsel or your tax advisor to recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. Circular 230 notice: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.
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