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How does RSU factor into annual tax? Does unsold RSU count as income for that year? or only sold RSUs

For example, my W2 income for the year is 200k, and I have another 200k of unsold vested RSU, so does my total income count as 200k for the year or 400k?
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3 Replies

How does RSU factor into annual tax? Does unsold RSU count as income for that year? or only sold RSUs

200K

 

When you sell the stock you still own the taxes are paid in that tax year on the profits only.

TomD8
Level 15

How does RSU factor into annual tax? Does unsold RSU count as income for that year? or only sold RSUs

RSUs are taxed as income to you when they vest, and their value is included in the compensation reported in Box 1 of your W2.  That income is subject to federal and employment tax (Social Security and Medicare) and any state and local tax. The income is subject to mandatory supplemental wage withholding. 

 

Thus your taxable income in your scenario would be $400K.

 

When you sell your vested shares, you will have a capital gain or loss, based on their change in value since the vesting date.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

How does RSU factor into annual tax? Does unsold RSU count as income for that year? or only sold RSUs

Hopefully @TomD8 response was not a surprise. 

 

I am surprised that the company did not provide an explanation of how this works.  Especially, since you will have significant withholding (as noted by TomD8).  If you haven't already, you need to discuss this with the company so you understand how the withholding taxes will be paid; some companies have more than one option, but in general, most taxpayer's sell some of their RSU's back to cover the tax implications.

*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.

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