Comprehensive Guide
Learn more in our Personal Finance Guide.
How it works
Sell-to-cover is how most RSU vestings settle taxes: your broker automatically sells just enough shares at the vest-date price to remit withholding, and the remainder lands in your brokerage account. The mechanics hide two surprises this calculator exposes. First, the shares sold are computed from flat statutory withholding rates — 22% federal supplemental plus your state's rate — applied to the full vest value, not your actual tax situation. Second, your true liability applies only to the spread: value above the grant-date price, taxed at your real marginal rate. On defaults, 240 shares at $185 vest for $44,400; the broker sells about 65 shares ($11,988) at combined 27% withholding, leaving roughly 175 shares in your account. But the true tax on a $21,600 spread at 32% plus state runs near $8,000 — meaning this example over-withholds by about $4,000, an interest-free loan refunded next April. High earners frequently see the opposite sign: incomes above the $1M threshold jump to 37% supplemental, while mid-bracket employees with big spreads under-withhold and owe in April. Either way, the fix is awareness: check each vest against your marginal rate, adjust W-4s or set cash aside deliberately, and remember that keeping company shares after vest is an active investment decision — concentration risk now yours, no longer deferred.Formula
Vest value = shares × price | Sold = (fed% + state%) × vest value ÷ price | True tax ≈ (price − basis) × shares × (marginal% + state%) | Gap = true − withheld
Tips
- Compare supplemental rates with your true marginal rate every single vest.
- Over-withholding? Adjust W-4 elsewhere or plan for the refund rather than lending it.
- Shares kept post-vest are a fresh investment choice — concentration cuts both ways.
- The spread is taxed as ordinary income; selling immediately creates no extra gain or loss.
- Watch multi-state vests if you relocated — sourcing rules follow work states.
Frequently asked questions
How are RSUs taxed when they vest?
The full market value at vest counts as ordinary income — here $44,400 on 240 shares at $185 — subject to income tax and payroll withholdings. Your grant-price basis does not reduce that income; it matters afterward, setting cost basis so any post-vest appreciation is capital gains.
What does sell-to-cover mean for RSUs?
The broker automatically sells enough shares at vest to cover required withholding, remitting it to tax authorities, and delivers the remaining shares to you. On these defaults about 65 of 240 shares sell, leaving 175. You never handle cash for the taxes; the shares are the payment.
Why did my RSUs get over-withheld?
Statutory flat rates rarely match reality: 22% federal supplemental applies regardless of bracket, while true tax hits only the spread above grant basis. This example over-withholds by ~$4,000 because the 22% rate exceeds what the spread owes at these inputs — common for grants made near current prices.
Should I sell RSUs immediately after they vest?
Financially neutral on taxes — income was already recognized at vest, so immediate sale triggers negligible additional gain or loss. The real question is concentration: many advisors suggest selling promptly and diversifying, since holding doubles down on employer risk where your salary already sits.
Do RSU sales count as capital gains?
Only for movement after vest. The spread between grant-date FMV and vest-date FMV is ordinary income, handled through withholding. Once shares hit your account with that cost basis, subsequent gains or losses are short-term or long-term capital depending on holding period past the vest date.