How RSUs and ESPP Shares Are Taxed: A Plain-English Guide for Tech Employees

Quick answer

RSUs are taxed as wages when they vest, even if you don’t sell.
A $0 or missing 1099-B basis needs a Form 8949 adjustment, or the same income can be taxed twice.
Flat-rate RSU withholding may fall short, leaving a balance due.
ESPP shares are generally taxed when you sell; your holding period decides how much is ordinary income.

Stock pay from Apple, Meta, or a startup lands on several tax forms that don’t always line up. Here’s how it’s generally taxed and what to gather before you file.

RSUs: What They Are and When They’re Taxed

A restricted stock unit (RSU) is your employer’s promise to give you shares (or sometimes cash) later, usually on a vesting schedule. Typically, one RSU represents one share.

At grant: Generally, no tax.
At vesting: Usually the taxable event. The shares’ fair market value is treated as wages and included in your W-2.
Withholding: Often done by holding back or selling some vested shares (“sell-to-cover”).

The key point: you pay ordinary income tax on RSUs when they vest, whether or not you sell.

Selling RSU Shares: The “Double Tax” Trap

Sales are reported on Form 8949 and Schedule D. Your gain or loss is the sale price minus your cost basis: for RSUs, generally the value already taxed as wages at vesting.

Why the 1099-B basis is often $0 or missing

Under IRS broker reporting rules, brokers can’t add compensation income from equity awards granted after 2013 to reported basis. So Form 1099-B often shows a basis that is $0, blank, or doesn’t match your W-2.

How it gets fixed

IRS instructions say to report the sale on Form 8949 with an adjustment (code “B” for incorrect basis), and that this is your responsibility. Otherwise, the same value can be taxed as W-2 wages and again as a “gain”: the “double taxed RSU” problem.

Our cost basis guide walks through the fix.

Short-term or long-term?

The holding period generally starts at vesting. More than one year is generally long-term; one year or less is short-term.

Why You Might Owe Even Though Taxes Were Withheld

Employers often withhold on RSU income as supplemental wages, possibly at a flat federal rate. For 2026, IRS Publication 15 lists the optional flat rate as 22% (with a higher mandatory rate on supplemental wages over $1 million in a year).

If your actual rate is higher, withholding may fall short, so some tech employees are surprised by a balance due in April. The IRS Tax Withholding Estimator can help you decide whether to adjust your Form W-4 or make estimated payments.

ESPP Basics

How an ESPP works

An employee stock purchase plan (ESPP) lets you buy company stock through payroll deductions, often at a discount: as low as 85% of the stock’s value under a qualified plan. Some plans use the lower of the value at the offering start or on the purchase date.

Generally, there’s no tax when you buy; it comes when you sell.

Form 3922

Your employer issues Form 3922 for discounted ESPP purchases, showing the offering (grant) date, purchase date, and stock values on those dates. Keep every one for when you sell.

Qualifying vs. disqualifying dispositions

The tax depends on how long you held the shares:

Qualifying disposition: Sold more than 2 years after the offering (grant) date and more than 1 year after purchase. In general, ordinary income is limited to the discount based on the offering-date price (or your actual gain, if smaller); the rest is long-term capital gain. A loss is a capital loss, with no ordinary income.
Disqualifying disposition: Sold before meeting both holding periods. In general, the purchase-date value minus what you paid is ordinary income, even if the stock has since dropped; the rest is capital gain or loss.

Watch the basis here, too

ESPP ordinary income is added to your cost basis, but your 1099-B basis often leaves it out. The sale may need a Form 8949 adjustment to avoid double tax.

What to Bring

Gather these before you file or request a quote:

Form W-2 from each employer
Form 1099-B (consolidated 1099) from every brokerage account
Stock plan supplemental statements (such as E*TRADE / Morgan Stanley at Work, Charles Schwab, or Fidelity), which often show adjusted basis
Form 3922 for any ESPP shares
Vest/release confirmations showing vest date, shares, value, and shares withheld for taxes

Frequently Asked Questions

Are RSUs taxed twice?

They shouldn’t be. Only the change in value after vesting should be taxed when you sell. Double taxation usually means a $0 or missing 1099-B basis wasn’t adjusted on Form 8949.

My 1099-B shows $0 cost basis for my RSU shares. Is that a mistake?

It’s common: brokers generally can’t include wage income from post-2013 awards in reported basis. Your plan’s supplemental statement often shows the adjusted basis.

Why do I owe money when my employer already withheld taxes on my RSUs?

Flat-rate supplemental withholding may fall short of your actual rate. The difference shows up when you file.

Which ESPP sale is better, qualifying or disqualifying?

It depends on the stock price, timing, and your situation. Qualifying can shift more gain to long-term capital gain, but holding longer means more exposure to price changes. It’s worth discussing with a tax professional.

Do I need Form 3922 if I didn’t sell any ESPP shares?

Keep it either way. It records the dates and prices you’ll need when you sell.

How Insight Tax Helps

Stock compensation returns take careful reconciliation of your W-2, 1099-B, and plan records.

An Enrolled Agent: Insight Tax is run by Jon, an Enrolled Agent federally authorized to practice before the IRS.
A fixed-fee proposal, generally within two business days.
No payment is needed to ask.
Clear RSU/ESPP pricing, based on how many lots you sold and confirmed in your proposal before you decide.

Request your quote

This page provides general information only and is not individual tax advice. Your situation may differ, so please consult a tax professional about your return.