Taxes Taxable Income What Are RSUs on Form W-2? RSUs on Form W-2 Explained By William Perez William Perez Twitter William Perez is a tax expert with 20+ years of experience advising on individual and small business tax. He has written hundreds of articles covering topics including filing taxes, solving tax issues, tax credits and deductions, tax planning, and taxable income. He previously worked for the IRS and holds an enrolled agent certification. learn about our editorial policies Updated on January 16, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Share Tweet Pin Email Definition Restricted stock units (RSUs) are company shares granted to employees. RSUs that appear on Form W-2 indicate that shares have been delivered to you, which usually happens after vesting. This is a taxable event with implications that can affect withholding from your paychecks and your tax liability when you file your tax return. Photo: vitapix / Getty Images Definition and Example of RSUs on Form W-2 RSUs are given to employees as part of their compensation. These shares aren't transferred to the employees until certain conditions have been met, usually a term of employment. Employees are considered vested in their stock options when they satisfy the conditions, and the RSUs are transferred to them. RSUs aren't taxable until that occurs. The entire value of the stock is considered ordinary income after RSUs have been transferred. The fair market value of the stock becomes part of the employee's wages for the year, and it's reported on their W-2 form at tax time. How Do RSUs on Form W-2 Work? Your employer reports your income to you and to the IRS on your Form W-2. You'll receive copies providing you with the information you'll need to prepare your federal and state tax returns. RSUs are considered income for the tax year in which they're transferred to you. They're subject to withholding for federal and state income tax, Social Security and Medicare taxes, and any other payroll-related taxes. This can create problems that you should adjust for in your own estimated tax payments or on your Form W-4. A higher percentage of your pay is deducted for tax withholding and might result in your wages being over-withheld if your employer includes the restricted stock income with your regular pay for the pay period. However, your wages could be under-withheld if your employer includes the RSUs as a bonus or supplemental pay. Employers withhold at a flat rate of 22% on the first $1 million of supplemental wages paid out during the calendar year. Once supplemental wages for the year exceed $1 million, employers withhold at a flat rate of 37%. The 22% flat rate could result in too little being withheld for taxes, depending on your tax bracket. Note Consider submitting an amended Form W-4 to your employer to adjust your withholding if you think that your taxes are being over- or under-withheld. How To Read RSUs on Form W-2 The value of RSUs is typically recorded in Box 14 of the W-2, which is labeled "Other." Box 14 doesn't have a standard list of codes, thus allowing employers to enter any description they like. You might see the value of your vested stock followed by "RSU." Note RSUs are considered part of your wages, so they're also already included in Box 1 of your W-2, which reports your wages. Suppose you have $234,567 reported in Box 1 as wages and $12,345 reported in Box 14 labeled as RSUs. The $12,345 has been included already in the $234,567 amount, so you don't have to add the RSUs in Box 14 to your wages when you file your taxes. You might also receive dividends on your RSUs. A dividend is a payment made to shareholders from company profits. Any dividends you receive on RSUs are considered employee income and should only be reported on your W-2. List them on your Schedule B with your tax return with a note that you've included them as wages if you receive a 1099-DIV for the value of your RSU dividends. What To Know About Selling RSUs You can either retain the stock or sell it after you're vested in your RSUs. You will need to keep records and use additional forms when reporting your income and filing your tax return. You must record your basis in the RSUs, which is the amount paid for the stock plus the amount included as taxable income. You had at least $12,345 of basis in the example above because that's the amount reported on Form W-2. Calculate your gain or loss on the investment by subtracting the basis from the sale proceeds when the shares are sold. Report the sale by filing Schedule D and Form 8949. Key Takeaways Restricted stock units (RSUs) are company shares granted to employees.RSUs on Form W-2 indicate that shares have been delivered to you, which usually happens after vesting.Once transferred to the employee, RSUs are included as wages, and they are taxable at the fair market value of the stock.If your employer withholds too much or too little tax on your RSUs, you may need to submit a new Form W-4 to adjust. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Securities and Exchange Commission. "Terms of the Restricted Stock Units." Accessed Jan. 16, 2022. Internal Revenue Service. "Publication 15: Employer's Tax Guide," Page 20. Accessed Jan. 16, 2022. Internal Revenue Service. "Topic No. 409 Capital Gains and Losses." Accessed Jan. 16, 2022.