Restricted stock units become taxable as ordinary income when they vest. Employers must withhold federal income tax and FICA on the fair market value of the shares on the vesting date.
Why RSU Taxation matters for employers
When restricted stock units vest, the IRS treats the fair market value of the shares as ordinary compensation income in that pay period. The employer must include the vested RSU value in the employee's taxable wages, withhold federal and state income taxes, and withhold the employee share of FICA. Employers also owe the employer FICA match on RSU income. Because RSU values can be large and spike in a single pay period, payroll systems must be configured to handle supplemental income withholding correctly.
After vesting, the employee's cost basis in the shares equals the amount included as income. Any subsequent gain or loss when the shares are sold is a capital gain or loss, not wages. Employers have no further payroll responsibility after the vesting event is processed.
How BEG handles RSU Taxation for clients
BEG Managed Payroll handles RSU Taxation as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to RSU Taxation on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage RSU Taxation themselves?
No. A managed payroll provider handles RSU Taxation as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if RSU Taxation is handled incorrectly?
Errors related to RSU Taxation can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle RSU Taxation for managed payroll clients?
BEG tracks, calculates, and remits everything related to RSU Taxation as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
Want payroll fully managed?
BEG handles everything at $25-$45 PEPM. See your exact price in 90 seconds.
About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
Connect with Anthony on LinkedIn →