It is one of the questions we hear most. The short answer: the tax on RSUs happens at vest, whether you sell or not. So the decision to hold or sell is mostly an investment decision, and the tax picks up from there.
What selling at vest costs in tax
When RSUs vest, their value is taxed as pay, and that value becomes your cost basis. If you sell right away, the sale price is close to your basis, so there is little or no additional gain to tax. Selling at vest does not create a second tax bill.
Holding is the same as buying
Here is a useful way to think about it: if your employer paid you the same amount in cash, would you use it to buy company stock? Keeping vested RSUs is economically the same decision. Many tech employees already have their salary, bonus and unvested equity tied to one company. Holding every vest adds to that bet.
When holding can make sense
- You have a clear reason to believe in the stock and can afford for it to fall.
- The position is a modest part of your net worth.
- You want gains after vest taxed at long-term rates, which requires holding more than a year from the vest date.
Tax details that change the answer
- Withholding gaps: selling some shares at vest can fund the extra tax that the 22% withholding did not cover.
- Losses and wash sales: if you sell shares at a loss within 30 days of a new vest or ESPP purchase, part of the loss may be disallowed as a wash sale.
- Trading windows: insiders may only be able to sell during open windows or through a 10b5-1 plan, so plan sales ahead.
A simple rule many people use
Decide on a target for how much of your net worth can sit in your employer’s stock, sell vests above that target automatically, and revisit it once a year. It takes emotion out of each vest.
This is also where tax planning and financial planning overlap. If you want help with the investment side, our affiliated firm Circuit Wealth works on exactly this question (affiliation disclosure). Read more in tax and financial planning for stock compensation.