RSU Taxation: Your Net Yield After All Taxes

A 1,000-share restricted stock unit vest at an $85 fair market value generates $85,000 of ordinary income — and a California top-bracket employee keeps roughly $41,000 of it after federal, state, and FICA tax. That is a 48.3% Finluxy Equity After-Tax Yield. The other 51.7% never reaches the brokerage account.

That gap is the entire story of restricted stock unit (RSU — abbreviated hereafter) compensation at the $150k+ level, and it is routinely understated. Employers withhold at a flat 22% federal supplemental rate on vests under $1 million. A household already in the 32% or 35% federal bracket is under-withheld by ten to fifteen points on the day the shares hit. The shortfall does not disappear; it becomes an April liability.

The number employers don’t put on your paystub

An RSU has no tax event at grant. The taxable moment is vest: fair market value at the vest date multiplied by shares vested equals ordinary income, reported on the W-2 and subject to FICA. Everything after that — every dollar the stock moves between the vest date and the eventual sale — is a capital gain or loss measured from the vest-date cost basis. Two separate tax regimes, one transaction, and the second one is where most of the post-vest planning actually lives.

The ordinary-income piece is the large piece. According to IRS Publication 525, the spread captured at vest is compensation, not investment income, which is why it carries the full marginal-rate load plus payroll tax rather than preferential capital gains rates. For a single filer, the 37% federal bracket begins above $626,350 of taxable income; for married couples filing jointly, above $751,600 (IRS Revenue Procedure 2024-40, 2025 tax year). Most $150k+ households sit in the 32% or 35% band — still a long way above the 22% their employer withholds.

Key figures at a glance

Sources: IRS Rev. Proc. 2024-40 (federal brackets); IRS Pub. 15 / 2025 Payroll Tax Guide (supplemental withholding); California FTB 2025 rate schedules; SSA / IRS FICA figures (2025).

Building the yield from the components

Take the Cluster Brief’s anchor case and rebuild it line by line. A 1,000-share vest at $85 fair market value produces $85,000 of ordinary income. The tax stack, at the maximum California rate:

Components per IRS Pub. 525 (RSU ordinary income treatment); rates per IRS Rev. Proc. 2024-40, California FTB 2025 schedules, and SSA/IRS 2025 FICA. Excludes Social Security (assumes wage base already met) and the 0.9% Additional Medicare surcharge; both are addressed below. Finluxy Equity After-Tax Yield = (FMV − total taxes) ÷ FMV × 100.

This is the maximum-rate illustration, and it carries two deliberate simplifications worth naming. The 13.3% California rate applies only to taxable income above $1 million; a household with $400,000 of income faces a 10.3% or 11.3% California marginal rate on the vest, not 13.3%. And the figure above omits Social Security on the assumption the $176,100 wage base (SSA, 2025) is already exhausted by salary — true for most $150k+ earners, but not all. Add the 0.9% Additional Medicare surcharge that applies above $200,000 single or $250,000 married filing jointly, and the top-end employee’s marginal payroll-plus-income rate on the vest reaches 52.65%. The yield drops below 48%.

The framework behind the net RSU yield after all taxes is straightforward to re-run at any bracket: substitute your actual federal marginal rate, your state’s marginal rate on the relevant income slice, and 1.45% (or 2.35% above the Additional Medicare threshold). The denominator is always the full fair market value at vest.

Yield across realistic brackets, not just the ceiling

Most coverage models the 50%-plus maximum and stops. That overstates the bite for the majority of $150k+ households, who never touch the 37% federal or 13.3% California rates. Here is the same $85,000 vest across three California salary bands, using marginal rates that actually apply at those income levels.

Marginal rates: IRS Rev. Proc. 2024-40 (2025 federal), California FTB 2025 schedules. Medicare 2.35% reflects the 0.9% Additional Medicare surcharge above the $200k/$250k threshold (IRS, 2025). Assumes Social Security wage base met. Finluxy Equity After-Tax Yield = (FMV − total taxes) ÷ FMV × 100. State SDI of 1.2% (CA EDD, 2025) excluded from these rows; including it lowers each yield by roughly one point.

The spread is the point. A dual-income household at $170,000 keeps almost two-thirds of a vest. A single filer at $800,000 keeps under half. Same equity, same employer, same vest date — a 17-point yield difference driven entirely by where the vest stacks on the existing income.

The withholding trap most coverage glosses over

The under-withholding problem is real, but the California version is more nuanced than the federal-only framing suggests. On the federal side, the employer withholds 22% on a vest under $1 million while the employee’s actual marginal rate is 32% to 37% — a structural 10-to-15-point shortfall (IRS Pub. 15 sets the 22% supplemental rate). That gap is unambiguous and grows with income.

California cuts the other way at middle incomes. The state’s mandatory supplemental withholding on stock and bonus income is 10.23%, set by the California EDD (Publication DE 44, 2025). For a household whose actual California marginal rate is 9.3%, that 10.23% is slight over-withholding — a small state-level credit against the federal under-withholding. The net cash shortfall is therefore smaller than the federal number alone implies, until income climbs into the 11.3% and 12.3% California brackets, at which point both sides under-withhold together. The interaction of federal and state withholding is the kind of detail the California RSU tax rate breakdown turns on, and it is why a flat “you’ll owe a fortune” warning is imprecise.

The practical consequence: a $150k+ employee with meaningful annual vesting should expect a balance due at filing, fund it through estimated payments or additional W-4 withholding, and not treat the sell-to-cover shares as having settled the bill. They rarely have.

Where RSUs sit against the other equity types

RSUs are the least flexible equity instrument on the tax-timing axis, and that is their defining trait. There is no exercise decision, no holding-period election at vest, no equivalent of the 83(b) move available to early-exercised options. The income lands as ordinary income on the vest date whether the employee wants it or not.

Contrast the alternatives. Incentive stock options (ISOs — abbreviated hereafter) defer all regular tax to exercise and, if the holding period is met, convert the entire gain to long-term capital gains — though the spread at exercise is an AMT preference item, which is its own exposure covered in the AMT risk on incentive stock options. Non-qualified stock options (NSOs — abbreviated hereafter) tax the spread as ordinary income at exercise but let the holder choose when that exercise happens. The full ordinary-versus-capital comparison runs through the ISO vs NSO tax cost comparison, and the discount mechanics of the ESPP taxation and discount value add a third structure with its own qualifying-disposition rules.

The trade-off RSUs remove is timing control. What they offer in exchange is certainty — the shares vest, the value is what it is, and there is no exercise cost to fund. For households weighing the full picture, the equity compensation tax guide for high earners places RSUs in the broader frame.

The post-vest decision that actually moves the needle

The vest-date tax is fixed. The decision that remains open — and the one with real money attached — is whether to hold the shares afterward or sell immediately. Selling at vest locks the cost basis equal to the income already taxed, producing zero additional gain or loss. Holding converts the position into a market bet: any appreciation becomes a capital gain (long-term if held a year past vest), any decline a capital loss, and the concentration risk of a single-stock position compounds.

The math here is genuinely two-sided and is the substance of the RSU vest, sell vs hold tax decision. Long-term capital gains on post-vest appreciation are taxed at preferential federal rates — but California taxes capital gains as ordinary income at full state rates, with no preferential treatment, so the state-level incentive to hold is weaker for California residents than the federal picture suggests. A long-term gain on held shares also potentially attracts the 3.8% Net Investment Income Tax, which does not touch the ordinary-income vest but does apply to the subsequent gain. For employees subject to trading windows, a 10b5-1 plan for stock sale timing structures the sell-down in advance under SEC insider-trading rules.

Methodology

Tax rates are drawn from primary sources in the order the Finluxy Equity & Comp cluster prioritizes them. Federal marginal brackets come from IRS Revenue Procedure 2024-40 for the 2025 tax year. Supplemental withholding rates (22% federal, 37% above $1 million) come from IRS Publication 15. The ordinary-income characterization of RSU vesting follows IRS Publication 525. FICA components — 6.2% Social Security to the $176,100 wage base, 1.45% Medicare with no cap, and the 0.9% Additional Medicare surcharge above $200,000 single / $250,000 married filing jointly — come from SSA and IRS 2025 figures. California marginal rates and the 13.3% top combined rate come from the Franchise Tax Board 2025 rate schedules; the 10.23% state supplemental withholding rate and 1.2% SDI come from California EDD Publication DE 44.

The Finluxy Equity After-Tax Yield is calculated as (fair market value at vest − total taxes paid) ÷ fair market value × 100, applied to each scenario. Where the brief’s anchor case used the maximum federal and California rates, I rebuilt the tax stack at three realistic income bands to show the yield’s actual range rather than only its floor. Marginal scenarios assume the vest stacks on top of stated existing wage income; the maximum-rate case applies the 13.3% California rate, which is only reached above $1 million of taxable income. Figures appearing in both body text and tables are carried verbatim from the same source calculation.

What this means at $150k+

The decision that matters at this income level is not whether to accept RSUs — that is rarely optional — but how to manage the cash and concentration consequences of vesting that lands as ordinary income at a marginal rate the employer’s withholding does not match. Three thresholds deserve attention. The first is the under-withholding gap: anyone with sizable annual vesting in the 32%-plus federal bracket should plan for an April balance and fund it deliberately, because the automatic 22% sell-to-cover will not. The second is the hold-versus-sell call, where the absence of any California capital gains preference and the 3.8% Net Investment Income Tax on post-vest appreciation tilt the after-tax case toward diversifying out of concentrated single-stock risk rather than holding for a tax break that, at the state level, does not exist. The third is the income-stacking effect: a vest that arrives in a year already pushed toward the 37% bracket by a bonus, an option exercise, or a spouse’s income yields meaningfully less than the same vest in a lighter year, which is the entire argument for spreading liquidity events across tax years where vesting schedules and trading windows allow. For households where vests routinely run into six figures, modeling the Finluxy Equity After-Tax Yield at your actual bracket before each vest — rather than assuming either the 22% withholding or the 50% worst case — is the difference between planning around the real number and being surprised by it; that modeling is where a tax professional familiar with equity compensation earns their fee.