How Are RSUs and PSUs Taxed?

Restricted stock units (RSUs) and performance stock units (PSUs) are generally taxed as ordinary income when the shares are delivered to you, which is usually at vesting. Your employer typically withholds some tax at that point. When you later sell the shares, the change in value since delivery is reported separately as a capital gain or loss.

That is the core rule, but the details are where many executives and senior employees run into surprises. This article explains the process in plain language, covering what happens at each stage, why withholding often differs from the tax you actually owe, and which questions are worth raising before a large award vests. The figures below are for 2026 and come from the IRS and the Social Security Administration. Rules and limits change, and your plan documents control the specifics of your awards.

What is the difference between RSUs and PSUs?

An RSU is a promise from your employer to deliver company shares (or sometimes cash) once a condition is met. The condition is usually staying with the company for a set period, so the award "vests" on a schedule.

A PSU works the same way, except that vesting also depends on performance goals. Those goals might involve company results over a multi-year period. Depending on the plan, you may earn fewer shares than the target amount, the target amount, or more than the target amount, or none at all if the goals are not met.

Neither award gives you shares on the day it is granted. You hold a right to receive shares later, and the tax treatment follows from that.

When are RSUs taxed: at grant, at vesting, or at sale?

Generally in stages, and not at grant.

1. At grant: There is usually no income tax, because you have a promise of future shares and not stock you own.
2. When shares are delivered: The fair market value of the shares is generally treated as wages and reported on your Form W-2. For many plans delivery and vesting happen on the same day. If your plan delays delivery after vesting, the timing of the tax can differ, so check your award agreement.
3. When you sell: Any gain or loss is reported as a capital gain or loss, measured from the value that was already included in your wages.

Here is an illustration of the mechanics, not an estimate of any outcome. Suppose 1,000 shares are delivered when each share is worth $50. The $50,000 is generally wage income. That $50,000 also becomes your starting cost basis. If you later sell for more than $50 per share, the difference is a capital gain. If you sell for less, it is a capital loss.

How much tax is withheld when RSUs vest?

Withholding is an estimate collected by your employer, and it is not necessarily your final tax. Several pieces apply to RSU income:

• Federal income tax: The IRS treats RSU income as supplemental wages. For 2026, employers may generally withhold at a flat 22%, and at 37% on supplemental wages above $1 million in a calendar year. See IRS Publication 15 (2026).
• Social Security tax: 6.2% on wages up to $184,500 for 2026, per the Social Security Administration. Many executives have already passed that limit by the time a large award vests, so this piece may not apply to the vest.
• Medicare tax: 1.45% on all wages, with no cap. An additional 0.9% applies to Medicare wages above $200,000 for withholding purposes, per IRS Topic 751. The tax-return thresholds for the additional tax differ by filing status.
• State and local tax: These may also apply, depending on where you live and work.

Your actual federal income tax is determined when you file your return, and it may be higher or lower than what was withheld. A flat 22% withholding rate can fall short for someone whose total income places them in a higher bracket. That gap is often the reason for an unexpected balance due in April, and it is worth reviewing with your tax professional before the vest, not after.

What happens when you sell the shares?

Your sale is reported separately from your wages. The IRS treats a gain or loss as short-term if you held the shares one year or less and long-term if you held them more than one year. For RSU shares, the holding period generally starts when the shares are delivered to you, not at grant. See IRS Topic 409.

One detail deserves attention. Your broker's Form 1099-B may show a cost basis that leaves out the value already included in your wages. If so, you may need to correct the basis on Form 8949 so the same value is not taxed twice. The Form 8949 instructions explain the adjustment. Keep your vesting records and your W-2 to support the figure.

How are PSUs taxed?

PSUs generally follow the same pattern as RSUs. The performance conditions decide whether and how many shares are earned. Once shares are delivered, their value is generally ordinary wage income, subject to payroll taxes and withholding, and a later sale is measured from that value.

If the performance goals are not met and no shares are earned, there is generally no stock income from that award. Because performance certification, vesting and share delivery can fall on different dates, the plan's settlement terms matter for timing.

How do RSUs compare with stock options?

Stock options give you the right to buy shares at a set price, so the tax events depend on the type of option and when you exercise. RSUs have no purchase price, and the delivered shares are generally taxed as wages even if the share price later falls. The two are taxed differently enough that a plan holding both deserves separate attention.

What should executives think about before an award vests?

Equity awards can grow into a large share of a household's net worth. A few questions are worth raising early:

• How much of your net worth sits in one company? Your paycheck, your bonus and your unvested awards may all depend on the same employer. A single stock can lose value, and diversification does not ensure a profit or protect against loss.
• Is a large vest likely to push your income into a higher bracket? Estimated tax payments or adjusted withholding may be worth discussing with your tax professional.
• How do your vesting dates line up with the tax year? The timing of income across years can affect your overall tax picture.
• Are there trading windows or plan restrictions? Many executives are limited in when and how they can sell.
• What do you want the shares to do? Cover a home purchase, fund giving, support family, or stay invested? The answer shapes the plan.

At Monument Group, we look at equity compensation as one part of Master Planning, where investments are considered alongside spending, taxes, family responsibilities and longer-term goals. Our Tax Strategy work is year-round, so decisions about a vest can be discussed before the tax year closes. You can find more of our writing on the Tax insights page.

What equity compensation planning can and cannot do

Planning can help you understand the tax mechanics of an award, anticipate the cash needed at vesting, and see how the shares fit into your broader financial picture. It cannot predict the future share price, remove market risk, or change the tax rules that apply to your awards. Results vary with individual circumstances, and tax outcomes depend on your plan terms and your complete tax situation.

Frequently asked questions

Do I pay taxes on RSUs when they vest? Generally yes. The fair market value of the shares delivered is treated as wages, and your employer typically withholds taxes. If your plan delays delivery after vesting, the timing of the income can differ.

Why was my RSU withholding lower than the tax I owed? Employers may withhold federal income tax on supplemental wages at a flat 22% for 2026. Your actual tax depends on your total income, filing status and other factors, so the withholding can be lower or higher than what you owe.

Are PSUs taxed differently from RSUs? Generally no. Both are taxed as ordinary income when shares are delivered. The difference is that PSUs depend on meeting performance goals, which determine how many shares you earn.

Do I owe capital gains tax on RSUs? Only when you sell the shares, and only on the change in value since delivery. The value included in your wages becomes your cost basis. A sale after more than one year is generally long-term.

What happens to unvested RSUs if I leave my company? It depends on your award agreement. Unvested units are commonly forfeited, but plans differ, especially for retirement, layoffs or a company sale. Review your plan documents and ask your employer's equity administrator.

Talk it through before the next vest

If you receive RSUs or PSUs and want to understand how an upcoming vest fits into your broader plan, we are glad to talk it through. Schedule a Conversation to get started.

This article is for educational purposes and is not personalized advice or a forecast. Tax rules and limits change, and your situation may differ. Please consult your own tax professional about your awards.