RSU Tax Planning: Tips and Strategies for High-Net-Worth Professionals
Finding skilled employees can be highly competitive, and restricted stock options (RSUs) are a valuable way for companies to retain talent long-term. When you’re granted RSUs, you become a stakeholder rather than just an employee, where company success translates into direct financial gain for you.
This can be a windfall for executives and tech professionals who are helping their companies reach new heights. But it also makes tax season that much more complicated.
So, how are RSUs taxed, and where are high earners most likely to run into surprises? Let’s take a closer look at the strategies high-net-worth individuals use to manage their tax exposure more effectively.
What are RSUs?
RSUs are a form of equity compensation that grant employees the right to receive company shares after certain conditions are met. They differ from stock options in that they don’t require you to purchase shares. Once you fulfill your contractual obligations and the RSUs vest, the shares become yours.
While the exact terms of an RSU may vary depending on your grant agreement, most RSUs are subject to a vesting schedule that requires you to remain employed for a set period of time. In some cases, the company may require you to meet specific performance or company milestones before the shares are released.
How Are Restricted Stock Units Taxed?
In some cases, the taxation of restricted stock depends on more than just time-based vesting. Many private companies use “double-trigger” RSUs, which require both continued service and a liquidity event, such as an IPO or acquisition, before shares are delivered and taxed. In these situations, taxation is deferred until both conditions are met.
Because vesting structures vary by company and stage, understanding how the taxation of restricted stock works in your specific plan is important well before a liquidity event occurs.
How RSU Taxes Work
RSUs are taxed at the moment they vest, when the restricted units convert into actual company shares. At that point, the fair market value of the shares on the vesting date is treated as ordinary income and is reported on your W-2.
Employers typically help cover the taxes in one of two ways:
Share withholding: A portion of the vested shares is automatically withheld and sold to help cover the tax bill, with the remaining shares deposited into your account. This is the most commonly used method.
Cash withholding: Your employer deducts the tax amount from your paycheck and delivers all vested shares to you. While less common, this approach may be used if share sales aren’t practical due to trading restrictions or limited liquidity.
It’s important to note that these deductions are often calculated using the IRS’s supplemental wage withholding rate, which is a one-size-fits-most default. If you’re a high earner, your actual tax rate may be much higher than what was withheld at vesting.
For example, your employer may withhold 22% in federal taxes at vesting, even though your marginal federal tax rate is 35% or higher. On a $200,000 RSU vest, that gap alone can mean tens of thousands of dollars owed at filing.
Strategic RSU Tax Planning
While you may not have much control over your initial tax bill at vesting, understanding the broader RSU tax implications can help you make more proactive long-term decisions.
Timing Your RSU Sales for Optimal Tax Treatment
Once those RSUs vest, you’ll need to make a decision about whether to sell immediately or hold the shares. Each comes with its own set of risks and opportunities:
Holding vested RSUs increases your exposure to a single stock, and it’s tied to the same company that already provides your salary, benefits, and future equity grants. This can create a level of concentration that might be difficult to justify from a risk standpoint.
What’s more, any increase in the stock’s value after vesting is taxed separately when you sell, meaning your eventual tax bill now depends on both timing and market performance. Holding shares may offer upside if the stock continues to appreciate and can allow gains to qualify for more favorable long-term capital gains treatment.
Selling some or all of your shares reduces this risk, and the liquidity can be used to cover taxes or invest elsewhere for a more balanced portfolio.
While selling doesn’t undo the tax owed at vesting, it does limit further exposure. If you sell soon after vesting, you could lower capital gains, whereas holding longer may qualify gains for more favorable tax treatment, but only if the stock appreciates, and with added volatility along the way.
For executives and insiders who face trading windows or blackout periods, taking a more structured approach can be especially helpful. A 10b5-1 trading plan allows you to pre-schedule RSU sales based on a defined set of rules to help manage timing and compliance.
There’s no universal right answer as to whether to hold or sell, and it may be worth seeking the guidance of a financial advisor who understands the ins and outs of equity compensation to help you decide.
Short-Term vs. Long-Term Capital Gains
It’s important to understand how capital gains play into your RSU tax treatment.
At vesting, RSUs are taxed as ordinary income. Any change in value after that date is subject to capital gains tax when the shares are sold. If you sell your shares within one year of the vesting date, gains are taxed at ordinary income tax rates; if you hold for more than one year, you may qualify for lower long-term capital gains rates.
So, while holding your shares longer can result in more favorable tax treatment, that benefit only materializes if the stock appreciates. Evaluating whether the potential tax savings justify that risk is a core part of RSU planning.
Key Strategies for Minimizing Taxes
While RSU taxes at vesting are largely fixed, you can improve after-tax outcomes over time with careful planning. Common strategies include:
Managing tax brackets intentionally: Planning focuses on coordinating deductions, deferring optional income, and avoiding unnecessary secondary tax costs in heavy vesting years.
Charitable giving strategies: Donating appreciated shares that qualify for long-term capital gains treatment means you can support charitable causes while avoiding capital gains taxes.
Coordinating RSU sales with other income events: Aligning equity sales with years that include lower income, major deductions, or liquidity needs can create more favorable tax outcomes.
Reducing overconcentration in employer stock: Gradual diversification supports tax planning by spreading gains over time and avoiding large, single-year tax spikes.
Viewing RSUs as part of a broader, integrated tax and investment plan rather than a standalone decision is key to maximizing their value.
Advanced Tax Planning Techniques
Basic tax planning strategies are often just the starting point. With larger portfolios and more complex financial lives, it may be necessary to employ more sophisticated planning to manage your annual tax liability:
Planning RSU Sales Around Liquidity Events
RSUs usually can’t be sold until a company is public and trading restrictions have been lifted, but major liquidity events create predictable planning windows.
As IPOs, tender offers, or secondary sales approach, you can anticipate when RSUs vest and when selling may realistically become possible. Planning ahead allows you to avoid rushed decision-making and manage tax exposure once liquidity becomes available.
Coordinating RSUs with Long-Term Wealth Planning
As RSUs become a meaningful part of your net worth, they should be treated like any other major asset.
Vested shares can be incorporated into estate planning through trusts, gifting, and charitable strategies. From an investment perspective, planned RSU sales help maintain diversification and prevent employer stock from creating unintended concentration or risk in your portfolio.
Planning Around Company Milestones
Company events like earnings releases, product launches, or regulatory decisions can drive short-term stock volatility. While these events do not change how RSUs are taxed at vesting, they can influence when and how shares are sold. As part of effective RSU tax planning, scenario analysis can help you evaluate tradeoffs in advance so decisions are made deliberately rather than reactively.
For professionals with significant equity compensation, RSU tax planning works best when integrated into a broader financial strategy. Advisors who specialize in equity compensation can help coordinate taxes, cash flow, diversification, and long-term goals to improve after-tax outcomes over time.
RSUs and Your Investment Strategy
RSUs need to be integrated into your broader investment strategy that balances diversification, risk management, and long-term financial security.
At Citrine Capital, we help high-net-worth individuals and professionals navigate equity compensation using a personalized, holistic approach. If you’re seeking to minimize tax drag from RSUs and make informed investment decisions, we can help. Request a meeting today to get started.
FAQs on RSU Tax Planning
Questions about RSU tax prep and planning? We’ve got answers.
Why are my RSUs taxed at 40%?
RSUs usually aren’t taxed at 40%. What you’re seeing is likely the result of combined withholding, not your final tax rate. When RSUs vest, employers withhold taxes using IRS supplemental wage rules. For high earners, those combined withholdings can approach 40%, especially in high-tax states like California. Your actual tax liability depends on your total income, which is why planning matters.
What is an RSU offset?
An RSU offset refers to the shares or cash your employer withholds at vesting to cover required taxes. This reduces the number of shares you receive but helps satisfy your initial tax obligation. For example, if 100 RSUs vest and 30% is withheld for taxes, you may receive 70 shares while 30 shares (or their cash value) are used to satisfy your initial tax obligation.
How do I avoid double taxation on my RSU?
You can avoid double taxation by making sure your RSU income is reported correctly. At vesting, the value of your RSUs is taxed as ordinary income and included on your W-2. When you later sell the shares, you should only be taxed on any change in value after vesting.
A common issue is cost basis reporting. Many custodians do not automatically report the correct vesting-date cost basis, which can cause the same income to be taxed twice if not adjusted on your tax return. Reviewing your 1099 and using the correct vesting-date cost basis when reporting the sale helps prevent overpaying.
Are RSUs better than stock options?
RSUs aren’t inherently better or worse than stock options. RSUs provide guaranteed value at vesting and full participation in any future stock appreciation, which reduces downside risk. Stock options carry more risk and can expire worthless, but they may offer greater leverage in early-stage or high-growth scenarios. The better choice depends on factors such as company stage, stock volatility, income level, tax considerations, and your overall financial goals.
About The Author
Jirayr Kembikian, CFP® is a wealth advisor, managing director and co-founder of Citrine Capital, a San Francisco-based wealth management and tax preparation firm serving tech professionals, founders, and business owners. He specializes in navigating the complexities of equity compensation, private investments, and Bitcoin wealth strategies. With over a decade of experience guiding clients through liquidity events and complex financial decisions, Jirayr brings a grounded yet forward-thinking perspective to building and preserving wealth.