"The full fair market value of vested shares is reported as ordinary W-2 income on the vesting date, whether you sell or not. Most employers withhold at the IRS supplemental wage rate of 22%, which is frequently insufficient for high earners."
"Shares received at vesting have a cost basis equal to the fair market value on the vesting date, the same amount already taxed as income. Any appreciation after vesting is a separate capital gain event, taxed at either short-term or long-term rates depending on holding period."
"Getting the tax mechanics wrong doesn't just sting at filing time, and it can derail years of wealth-building. The purchasing power of every dollar of compensation is being quietly eroded due to rising CPI."
Restricted Stock Units (RSUs) are common in equity compensation, but their tax treatment can be confusing. When RSUs vest, the fair market value is reported as ordinary income, triggering tax obligations. Employers often withhold at a supplemental rate of 22%, which may be insufficient for high earners. The cost basis of shares equals the fair market value at vesting, and any future gains are taxed separately. Misunderstanding these mechanics can lead to significant financial consequences, especially as inflation erodes purchasing power.
Read at 24/7 Wall St.
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