RSUs sting high-earners with taxes

Restricted stock units are supposed to feel like upside. More pay, more ownership, more alignment with the company. But the part that trips people up is simple — RSUs are first a payroll and tax event, and only after that are they an investment. That gap between “I got stock” and “I owe tax now” is where even high earners get squeezed. (irs.gov) ### What is an RSU, really? An RSU is a promise to deliver company stock later, usually after you stay employed long enough to meet a vesting schedule. Until vesting, you do not actually own the shares. (sec.gov) When the RSU vests and the stock gets delivered, the IRS treats that value as wages. Basically, your employer just paid you compensation in stock instead of cash. ### Why does the tax hit at vesting? Because vesting is the moment the compensation becomes yours. If 10,000 shares vest at $100, you just recognized about $1 million of wage income even if you never touched cash. (irs.gov) That is the mind-bender. People think the tax comes when they choose to sell. For plain-vanilla RSUs, the main income-tax event usually comes first, at vesting. Later price moves mostly create capital gains or losses on top of that starting point. ### Why does withholding still leave people short? Because withholding is not the same thing as final tax liability. (irs.gov) The IRS says supplemental wages are generally withheld at 22%, and if an employee’s supplemental wages for the year exceed $1 million, the rate above that threshold is 37%. But a high earner’s actual combined federal, state, and payroll tax bill can still be higher, especially in high-tax states. So the company withholds something, the employee relaxes, and then tax season shows the gap. ### Why do companies sell shares automatically? (irs.gov) Because somebody has to fund the withholding. One common method is “sell to cover” — the company or broker sells enough newly vested shares to send cash to the tax authorities. You see this all the time in insider filings. On May 11, 2026, Rocket Pharmaceuticals executive Sarbani Chaudhuri reported selling 17,650 shares at $3.838, and the filing states those shares were sold to pay tax withholding tied to RSU vesting. That is the cleanest real-world example of the rule in action. (irs.gov) ### So why do high earners still feel cash-poor? Because RSU wealth is lumpy, not smooth. Salary pays bills monthly. RSUs can dump a huge amount of taxable income into one paycheck cycle, while the remaining shares sit in one volatile stock. If the employee keeps most of those shares, they now have both a tax bill and a concentration problem. If the stock drops later, the tax on the vest date does not disappear. ### Why is concentration the other half of the problem? Because employer stock can quietly become the whole balance sheet. FINRA’s warning is straightforward — a large chunk of wealth in one stock is concentration risk, and diversification exists to reduce exactly that kind of single-name blowup. (sec.gov) RSUs make this sneaky because the position builds automatically through compensation, not through an active investment decision. ### What should people actually remember? Treat each vest like a bonus plus a portfolio decision. (irs.gov) First ask, “What tax bill did this create?” Then ask, “If this were cash, would I buy this much of my employer’s stock today?” That framing cuts through the illusion. RSUs can be valuable. But they are not free money — they are wages wearing a stock costume. (syndication.finra.org)