RSU Tax Withholding

RSU tax withholding is the process of calculating and remitting taxes when restricted stock units vest. Upon vesting, the company automatically withholds federal income tax (based on W-4), FICA taxes (6.2% Social Security + 1.45% Medicare), and applicable state/local taxes. The company then uses net settlement—selling enough shares to cover the tax liability—to provide the employee with shares after tax. Correct withholding ensures employee tax compliance; incorrect withholding creates liabilities and audit risk. Payroll and finance teams must ensure accurate RSU tax withholding to remain compliant with federal and state tax laws. Incorrect withholding exposes companies to audit and penalties. For employees, understanding withholding ensures accurate W-2 reporting and prevents April surprises. This is a foundational skill for anyone managing equity compensation or payroll.