RSU compensation looks deceptively simple: you're granted 1,000 shares at $100/share (a $100,000 grant), vesting over four years. But that number—$100,000—is fantasy. On vesting day when your first 250 shares vest, the IRS treats those shares as ordinary income, not investment gains. You owe income tax on the full $25,000 value (at your marginal tax rate, often 35-45% when combining federal + state + FICA for tech employees). That's $10,000-$11,000 in tax on just the first tranche. The company won't give you $10,000 in cash; instead they perform "net settlement"—automatically sell enough vested shares to cover your tax bill. You wanted 250 shares; you'll receive perhaps 150 shares net. Four years later after all RSUs vest, you've only received 600 net shares instead of 1,000 because of tax withholding. Meanwhile, you never received a $100,000 check—it felt invisible until the tax bill arrived.
This calculator reveals what fraction of your RSU grant actually remains after taxes bite. On vesting day, you face ordinary income tax (35-45% depending on your bracket and state). When you eventually sell vested shares, you face capital gains tax on appreciation (15-20% long-term). If the stock dropped after grant, you might have paid $40,000 in income tax only to watch your 600 vested shares become worth $30,000—you're underwater on shares you can't even get back. Conversely, if stock doubled, you have nice unrealized gains that compound tax-deferred if you hold. The calculator models your specific situation: what's your current vesting progress? What's the after-tax value of vested shares today? What happens if stock rises 10% annually for three more years? Most employees are shocked by how little of their impressive-sounding grant actually survives the tax gauntlet.
The strategic insight is that RSU concentration risk is real and underestimated. If your RSU grant becomes 50-60% of your net worth, a 30% stock decline crushes your financial plan (you've already paid taxes on the full grant value). Diversification is essential: systematically sell vested shares and reinvest in index funds to maintain a healthy portfolio allocation. Second, understand your cost basis for each vesting batch—they have different tax consequences. Your first batch vested at $100/share; your final batch might vest at $300/share if stock appreciated. Track these separately for capital gains calculations. Third, plan for tax bills years in advance. If you're expecting a $50,000 vesting next year and you know you'll owe $20,000 in taxes, save now so you're not forced to sell shares at an inopportune time. Use this calculator to model your complete RSU picture across all vesting batches, project forward three years, and understand your true after-tax wealth and concentration risk.
RSU vs. Stock Options: Key Differences
RSUs have guaranteed value (at vest date, you own stock worth = grant price × shares). Stock options may be worthless if underwater. RSUs get ordinary income tax at vest date; options get capital gains treatment. RSUs are safer (always valuable) but taxed heavier (ordinary income, not capital gains).
The Tax Bill on RSU Vesting
On vest date, you owe ordinary income tax on the value (grant price × shares). Example: 1,000 RSUs at $100 = $100,000 taxable. At 40% tax rate, you owe $40,000 in taxes. You don't receive cash for taxes; company typically sells some shares to cover your tax liability (net settlement).
Net Settlement: How RSU Taxation Works
Upon vesting, company withholds shares to cover your tax bill. Example: 1,000 RSUs grant at $100, 40% tax = $40,000 tax. Company sells 400 shares ($40k) to cover taxes, gives you 600 shares net. You keep the remaining shares (now worth more if price rises).
Unrealized Gains: Paper Wealth vs. Real Wealth
After vesting and tax withholding, your shares may appreciate. If vested at $100 and price rises to $250, you have $150/share unrealized gain. Holding = tax-deferred growth. Selling = triggers capital gains tax (15–20% long-term). Don't let appreciation create concentration risk.
Planning for RSU Tax Bills
Budget for income tax at vest. Many people are surprised by the tax bill because RSUs are typically "invisible" until they vest. Plan 4 years ahead: estimate total RSUs × grant price × tax rate. Set aside cash or arrange financing (don't sell shares at a loss).