When I receive my W-2 each year, I often wonder how my restricted stock units are reported and whether they're properly included in my taxable income. Many employees with equity compensation face this same confusion, especially when trying to understand the tax implications of their vested RSUs.

Yes, RSUs are included in your W-2 as taxable income when they vest, with the full value reported in Box 1 as wages along with your regular salary. The vesting of RSUs triggers immediate tax liability because the IRS treats them as compensation, similar to receiving a cash bonus that happens to be paid in stock shares.

Understanding how my RSUs appear on my W-2 is crucial for accurate tax filing and avoiding potential issues with the IRS. The way employers report RSU income can vary slightly, and knowing what to look for helps me verify that my tax withholding is correct and that I'm not missing any important details when preparing my return.

Key Takeaways

• RSUs become taxable income when they vest and appear as wages in Box 1 of your W-2 form
• Employers handle tax withholding on vested RSUs automatically, but verification against your final paystub is recommended
• Understanding RSU reporting helps prevent double taxation and ensures accurate tax filing compliance

Are RSUs Included in Form W-2?

Yes, RSUs are included in your W-2 as taxable income when they vest. The IRS requires employers to report the fair market value of vested shares as wages, and this income appears in multiple boxes on your Form W-2.

When RSUs Are Reported as Income

RSUs appear on Form W-2 when shares have been delivered to you, which typically happens after the vesting date. The income recognition occurs at the moment of vesting, not when you originally received the RSU grant.

Your employer calculates the taxable amount using the stock's fair market value on the vesting date. This value becomes part of your ordinary income for tax purposes.

The timing matters because you don't owe taxes on RSUs until they actually vest. Unvested RSUs don't appear on your W-2 since you haven't received any taxable benefit yet.

If your company uses a graded vesting schedule, you'll see RSU income reported each year as different portions vest. Each vesting event creates a separate taxable event that must be included in that year's W-2.

How RSU Vesting Impacts W-2 Reporting

The vesting date triggers your employer's obligation to report RSU income to the IRS. When RSUs vest, your employer should handle the tax withholding correctly, but verification is important.

Most employers automatically sell some shares to cover tax withholding obligations. This sell-to-cover transaction doesn't change the W-2 reporting - you still owe taxes on the full vested value.

Key vesting impacts:

• Income appears in the tax year when vesting occurs
• Fair market value determines the taxable amount
• Tax withholding happens automatically through share sales
• Multiple vesting dates create multiple taxable events

Your final paystub should match your W-2 figures. Compare the total federal income tax withheld on your last paystub to Box 2 on your W-2 to verify accuracy.

RSU Income Placement on the W-2

The fair market value of RSUs is included in Boxes 1, 3, and 5 of Form W-2. Box 1 contains your total wages including RSU income, while Boxes 3 and 5 include RSU amounts for Social Security and Medicare tax calculations.

Employers may note RSU income in Box 14 labeled "RSU" or use code "V" in Box 12. This additional notation helps you identify the RSU portion of your total compensation.

W-2 Box Breakdown:

• Box 1: Total wages including RSU value
• Box 2: Federal taxes withheld (including RSU withholding)
• Box 12/14: Specific RSU amount identification
• Boxes 3 & 5: RSU income subject to Social Security/Medicare taxes

The full value of RSUs is included in your wages, including shares sold for tax withholding. Both the shares you keep and those sold for taxes appear as income on your W-2.

Understanding Tax Withholding on RSUs

When RSUs vest, employers automatically withhold taxes from the shares or cash equivalent to cover my tax obligations. This withholding process affects how the income appears on my W-2 and determines my final tax liability.

Types of Tax Withholding for RSUs

Federal Income Tax Withholding Employers withhold US federal income tax when my RSUs vest. The tax withholding on RSUs typically uses supplemental income tax rates, which is often 22% for federal taxes.

Employment Tax Withholding My vested RSUs are subject to employment taxes including:

• Social Security tax (6.2% up to the wage base limit)
• Medicare tax (1.45% on all income)
• Additional Medicare tax (0.9% on income over $200,000)

State Tax Withholding Most states also require withholding on RSU income. The rate varies by state, and some states have no income tax.

Withholding Methods Employers use sell-to-cover practices where they automatically sell a portion of my vested shares to cover the required withholding. Alternatively, they may withhold shares equivalent to the tax amount or require a cash transfer from me.

Reporting Withheld Taxes on the W-2

Box 1 - Wages and Income My W-2 Box 1 includes the full fair market value of vested RSUs as taxable income, even though shares were withheld for taxes. This is why my W-2 income appears much higher than my base salary.

Box 2 - Federal Tax Withheld The taxes withheld from my RSU vesting appear in Box 2 alongside other federal income tax withholding from my regular paychecks.

Box 3 and 5 - Social Security and Medicare RSU income subject to Social Security and Medicare taxes appears in Boxes 3 and 5. The corresponding withheld amounts show in Boxes 4 and 6.

Verification Process I should compare my final paystub to my W-2 to ensure the total withholding matches across both documents.

Impact on Taxable Income

Full Value Inclusion The entire fair market value of my vested RSUs becomes taxable income in the year of vesting, regardless of how much was withheld for taxes.

Withholding vs. Tax Owed The withholding amount may not match my actual tax liability. If insufficient taxes were withheld, I owe additional taxes when filing my return.

Adjusting Future Withholding I can submit a new Form W-4 to adjust withholding if my employer consistently withholds too much or too little on RSU income.

Cash Flow Considerations Even though I receive fewer shares due to withholding, I must report the full pre-withholding value as income. This creates a cash flow impact since I pay taxes on shares I never actually received.

Comparing RSUs with Other Stock-Based Compensation

Different forms of equity compensation have distinct W-2 reporting requirements and tax treatments. Each type triggers income recognition at different times and may require specific elections or actions to optimize tax consequences.

Nonqualified Stock Options and W-2 Reporting

Nonqualified stock options appear on your W-2 when you exercise them, not when they're granted or vest. The taxable income equals the difference between the fair market value on the exercise date and your exercise price.

Key W-2 reporting differences from RSUs:

• RSUs show income at vesting automatically
• Stock options only generate W-2 income upon exercise
• You control the timing of taxable income with options

Your employer reports the stock option exercise income in Box 1 as wages and includes it in Social Security and Medicare tax calculations. This income also appears in Box 12 with code "V" to identify it as stock option compensation.

The spread between exercise price and market value becomes ordinary income subject to withholding. Your employer may require you to provide cash for tax withholding or sell shares to cover the obligation.

Incentive Stock Options and Disqualifying Dispositions

Incentive Stock Options (ISOs) typically don't create W-2 income when exercised, unlike RSUs or nonqualified options. However, disqualifying dispositions change this treatment completely.

A disqualifying disposition occurs when you sell ISO shares before meeting the required holding periods. You must hold shares for at least two years from grant and one year from exercise to maintain preferential tax treatment.

Disqualifying disposition W-2 impact:

• Creates ordinary income equal to the lesser of: the spread at exercise or the gain on sale
• This amount appears on your W-2 as wages
• Remaining gain or loss becomes capital treatment

When I sell ISO shares in a disqualifying disposition, my employer reports the ordinary income portion on my W-2 in the year of sale, not exercise. This differs significantly from RSU income recognition at vesting.

Employee Stock Purchase Plans and W-2 Treatment

Employee Stock Purchase Plans (ESPPs) generate W-2 income when you sell the shares, with the timing and amount depending on whether you meet qualified holding periods.

Qualified disposition requirements:

• Hold shares at least two years from offering date
• Hold shares at least one year from purchase date
• Ordinary income limited to discount percentage times fair market value at grant

For nonqualified ESPP dispositions, the entire discount becomes ordinary income on your W-2. If I purchased shares at a 15% discount and sell immediately, that full 15% discount appears as wages subject to payroll taxes.

The tax implications vary significantly from RSUs because ESPP income recognition depends on sale timing rather than automatic vesting.

Restricted Stock and 83(b) Elections

Restricted stock appears on your W-2 at vesting unless you make a Section 83(b) election. This election allows you to recognize income immediately at grant instead of waiting for vesting.

Without 83(b) election:

• Income appears on W-2 at vesting based on fair market value
• Subject to ordinary income rates and payroll taxes
• Similar to RSU treatment but you own actual shares

With 83(b) election:

• Income appears on W-2 in grant year
• Based on fair market value minus purchase price at grant
• Must file election within 30 days of grant

Making a Section 83(b) election shifts the tax burden forward and converts future appreciation to capital gains treatment. This differs from RSUs where no election is available to change the timing of income recognition.

Tax Reporting and Filing for RSUs

When I file my tax return, I need to report RSU income in two places: ordinary income from vesting goes on Form 1040, while any gains or losses from selling the shares require Schedule D reporting.

Entering RSU Income on Form 1040

The RSU income from vested shares appears on my W-2 in Box 1 along with my regular wages. My employer includes the fair market value of the shares at vesting as ordinary income.

I don't need to make any special entries on my Form 1040 for this income. The RSU value automatically gets included when I enter my W-2 information.

Some employers also show RSU details in Box 14 labeled "RSU" or use code "V" in Box 12. This supplemental information helps me track the RSU amounts but doesn't require separate reporting.

My final paystub should match Box 2 on my W-2 for total federal tax withheld, including withholding from RSU transactions.

Schedule D and Capital Gains From RSU Sales

When I sell RSU shares, I report the transaction on Schedule D of my tax return. The sale creates either a capital gain or capital loss based on the difference between my sale price and cost basis.

My cost basis equals the fair market value on the vesting date - the same amount reported as ordinary income on my W-2. If I sell immediately after vesting, I typically have minimal gain or loss.

Short-term vs. Long-term Treatment:

• Shares held one year or less: Short-term capital gain/loss
• Shares held more than one year: Long-term capital gain/loss

I'll receive a Form 1099-B from my broker showing the sale proceeds. However, the form may not show my correct cost basis, so I need to calculate it myself using the vesting date value.

Long-term capital gains receive preferential tax rates of 0%, 15%, or 20% depending on my taxable income.

Same Day Sale vs. Sell to Cover vs. Net Issuance

My RSU settlement method affects how transactions appear on my tax documents and what I need to report.

Same Day Sale: I sell all shares immediately at vesting. The entire sale appears on Form 1099-B, and I report the full transaction on Schedule D.

Sell to Cover: I sell only enough shares to cover taxes and keep the rest. I report only the sold portion on Schedule D using the 1099-B information.

Net Issuance: My employer withholds shares for taxes before delivering the remainder to me. I don't receive a 1099-B since no sale occurred, and I have no immediate Schedule D reporting requirement.

My employer handles tax withholding correctly regardless of the settlement method chosen. The RSU income still appears as wages on my W-2 in all three scenarios.

Each method creates the same ordinary income tax obligation, but affects my future capital gains calculations differently based on how many shares I retain.

Key Rules, Regulations, and Compliance Considerations

RSU taxation and reporting follow specific federal tax codes and accounting standards. IRC Section 83 governs when RSUs become taxable, while ASC 718 dictates how companies report stock-based compensation expenses, and IRC Section 409A prevents certain deferred compensation arrangements.

IRC Section 83 and RSU Taxation

IRC Section 83 establishes the fundamental tax treatment for RSUs and other equity compensation. Under this section, RSUs become taxable when they vest and transfer to the employee.

The taxation occurs at the fair market value of the shares on the vesting date. This amount gets included as ordinary income on your W-2 form, subject to federal income tax and payroll taxes.

When RSUs vest, you get taxed at ordinary income rates rather than capital gains rates. Your employer must handle proper withholding at the time of vesting.

For independent contractors receiving RSUs, different rules may apply since they don't receive W-2s. The contractor would typically report the income on Form 1099-NEC instead.

ASC 718 Financial Reporting Requirements

ASC 718 requires companies to recognize stock-based compensation as an expense on their financial statements. This accounting standard affects how RSUs appear in corporate reporting.

Companies must measure the grant-date fair value of RSUs and recognize this cost over the vesting period. The expense appears on the income statement, reducing reported earnings.

RSUs have distinct tax considerations that companies must track for both tax and financial reporting purposes. Accurate record-keeping becomes essential for compliance.

The standard applies to all forms of equity compensation, including stock options and employee stock purchase plans. Public companies face stricter disclosure requirements under this framework.

Compliance With IRC Section 409A

IRC Section 409A governs deferred compensation arrangements and can impact certain RSU structures. Most standard RSUs avoid these rules because they vest and transfer immediately.

However, nonqualified deferred compensation rules under section 409A may apply to RSUs with unusual settlement terms or deferral features.

RSUs that allow employees to defer receipt of shares beyond vesting could trigger Section 409A compliance requirements. This creates additional tax complications and potential penalties.

Companies must structure their RSU programs carefully to avoid unintended Section 409A violations. Proper plan design ensures RSUs remain outside these deferred compensation rules.

Employer Implications and Deductions

Employers receive significant tax benefits when RSUs vest, including deductions equal to the employee's taxable income. The timing of these deductions aligns with employee income recognition, but corporate tax year differences can create complications.

Reporting Employer Deductions for RSUs

When I examine employer RSU deductions, the amount equals the fair market value of vested shares reported as employee wages. The employer deduction timing corresponds with employee income recognition upon vesting.

The IRS allows employers to deduct the full amount included in the employee's W-2. This creates a dollar-for-dollar deduction against corporate income.

Key reporting requirements include:

• Documenting fair market value at vesting
• Maintaining records of share delivery dates
• Tracking withholding amounts for employment taxes
• Coordinating with transfer agent for share transfers

I must ensure the deduction amount matches what appears in Box 1 of the employee's W-2. Any discrepancies can trigger IRS scrutiny during audits.

Timing of Deduction Recognition

Employers may take compensation tax deductions when RSUs are actually or constructively paid to employees. This creates immediate tax benefits upon the taxable event.

The deduction occurs in the tax year when shares vest, not when initially granted. I cannot claim deductions for unvested RSUs regardless of their book value.

Critical timing factors:

• Vesting date determines deduction year
• Share delivery must occur for deduction eligibility
• Employment taxes become due immediately upon vesting
• Quarterly estimated payments may be required

The transfer agent typically handles share delivery logistics, but employers remain responsible for tax reporting accuracy.

Effect of Corporate Tax Year Differences

Corporate tax years that differ from calendar years can create timing mismatches between employee income recognition and employer deductions. I must carefully track vesting events across tax periods.

Common scenarios include:

• RSUs vesting in December but corporate year ending in March
• Employee W-2 reporting in one year, employer deduction in another
• Transfer agent delays affecting deduction timing

The IRS requires deductions in the year shares actually transfer to employees. Late transfers can push deductions into subsequent tax years, affecting corporate tax planning.

I should coordinate with payroll systems to ensure proper employment taxes withholding occurs when the taxable event happens, regardless of corporate tax year timing issues.

Frequently Asked Questions

RSU taxation involves specific reporting requirements on W-2 forms, with vested shares appearing as taxable income in Box 1 and supplemental details in Box 14. Understanding withholding calculations and avoiding double taxation requires careful attention to how employers report these equity compensation benefits.

How is income from RSUs reported on the W2 form?

When my RSUs vest, the value becomes taxable income reported on my W-2. The vested RSU value appears in Box 1 as part of my total wages.

RSU income is also reported in Box 14 under "Other" as supplemental information. This helps me identify the specific RSU portion of my compensation.

The fair market value of the shares on the vesting date determines the taxable amount. My employer calculates this value and includes it with my regular wages for tax purposes.

What does the inclusion of RSUs in Box 1 of the W2 indicate for my tax filings?

RSUs in Box 1 indicate that I received taxable compensation from vested shares during the tax year. This amount gets treated as ordinary income, just like my salary or bonus payments.

The RSU value in Box 1 already includes the full vested amount, regardless of whether shares were withheld for taxes. I report this income on my tax return as part of my total wages.

The inclusion means I must pay income tax on the RSU value at my marginal tax rate. Social Security and Medicare taxes also apply to this compensation.

Can RSU taxes withheld be found on the W2, and if not, where should they be reported?

Tax withholding from RSUs appears in Box 2 of my W-2 along with other federal income tax withholdings. This includes taxes withheld through share sales or cash withholding.

I can verify the withholding by comparing my final paystub to Box 2 on my W-2. The amounts should match and include any RSU-related tax withholdings.

If my employer sells shares to cover taxes, those withholdings still appear in the standard tax withholding boxes. No separate reporting location exists specifically for RSU tax withholdings.

When RSUs are reported on both W2 and 1099 forms, how should they be reconciled on a tax return?

Double taxation occurs when I report the same RSU income twice on my tax return. I must avoid this common mistake by understanding what each form reports.

The W-2 reports the vesting event as ordinary income. A 1099-B reports the sale transaction, showing proceeds from selling the shares.

My cost basis for the sale equals the amount already reported as income on my W-2. This prevents double taxation on the same RSU value.

What is the correct procedure for reporting RSU sales on a tax return?

I report RSU sales on Schedule D as capital gains or losses. The sale date and proceeds come from my 1099-B form from the brokerage.

My cost basis equals the fair market value reported as income on my W-2. Any difference between the sale price and this basis creates a capital gain or loss.

I must calculate my cost basis correctly to avoid double reporting the income portion. The holding period determines whether gains qualify as short-term or long-term.

What are the tax withholding requirements for RSUs, and how can they be calculated?

My employer handles tax withholding when RSUs vest, but I should verify the amounts are correct. Insufficient withholding may require estimated tax payments.

The withholding rate typically ranges from 22% to 37% for federal taxes, depending on my income level. State taxes and FICA taxes also apply to RSU income.

I can adjust my Form W-4 if my employer withholds too much or too little. This helps optimize my tax withholding for future RSU vesting events.