6 Common RSU Tax Mistakes (and How to Avoid Them)

RSUs are straightforward on paper, but in practice they touch payroll, taxes, and your investment portfolio all at once. Without a financial advisor coordinating, those systems often operate in silos and can result in costly mistakes.

Most RSU tax mistakes aren’t technical errors. They’re the result of reasonable assumptions: that withholding covers the total tax liability, that brokerage forms are complete and accurate, that diversification happens automatically, or that equity simply “works itself out” when you change jobs. As equity compensation becomes a larger share of income, those assumptions get expensive.

This is a practical checklist of the most common RSU tax mistakes we see, and how to avoid them. Summitry specializes in equity compensation planning and has helped thousands of clients navigate RSUs with clarity, confidence, and fewer surprises.

• RSU withholding is not the same as your final tax bill
• RSUs are taxed in two stages, and each must be reported correctly
• Cost basis errors are the most common cause of “double taxation” confusion
• State rules and payment timing are incredibly important
• Most RSU tax mistakes are preventable with a coordinated tax strategy

Sell-to-cover is convenient, but it solves only one problem: withholding, not tax liability.

When RSUs vest, employers are required to withhold taxes. Most do this by selling a portion of the shares automatically and using the proceeds to cover payroll withholding (sell-to-cover). For many employees, this feels like the taxes are taken care of.

The issue is how withholding works. Employers generally treat RSU income as supplemental wages and often withhold federal tax at flat rates rather than your true marginal rate. Those rates do not adjust for:

• Other income, like bonuses or investment earnings
• A spouse’s income
• Prior RSU vests earlier in the year
• State-specific tax rules or timing requirements

As a result, sell-to-cover often leaves employees under-withheld, even though nothing looks wrong on a pay stub. The shortfall usually appears later, when filing the return or when penalties apply.

Action step: Compare year-to-date withholding to your projected total tax, not just your pay stubs.

RSUs don’t just create tax complications. They create concentration risk.

Because sell-to-cover delivers the remaining shares to you automatically, many employees accumulate large positions in company stock without ever deciding to do so. Without a game plan, this can result in a portfolio where income, career risk, and investment concentrations are all tied to the same company.

This isn’t always a tax mistake, but it often becomes one later. Concentrated positions can make selling harder, increase portfolio volatility, and can lead to large, poorly timed tax bills when diversification finally happens.

Holding company stock can be a deliberate strategy. Holding it by default is usually not.

Action step: Work with your advisor to intentionally decide how much company stock you want to hold, rather than letting RSUs accumulate automatically.

This mistake happens on the income side of the tax return.

When RSUs vest, their value is included in your wages. That income appears in Box 1 of your W-2, combined with salary and bonuses. It is already taxed as ordinary income.

Problems arise when taxpayers see RSU values on equity statements, vest confirmations, or Box 14 disclosures and assume they must report that income again. When RSU income is added separately on the return, wages are overstated and taxed twice.

RSU income should not be reported separately if it is already included in Box 1 of the W-2. Doing so creates artificial income and unnecessary taxes.

Action step: Have your tax professional check that RSU income is included in Box 1 of your W-2, and not duplicated elsewhere on the tax return.

This is where most “double taxation” confusion actually comes from.

When RSU shares are sold, the broker issues a Form 1099-B showing sale proceeds. However, brokerage systems often do not include the correct cost basis for RSUs. The form may show:

• A zero cost basis
• A partial basis
• Shares marked as non-covered

The correct cost basis for RSUs is the fair market value on the vest date, because that amount was already taxed as wages. If the basis is not corrected, the IRS may treat the entire sale proceeds as capital gain even though most of it was already taxed at vest.

This adjustment is made on Form 8949, and totals flow to Schedule D. While the mechanics are technical, the consequence is simple: failing to adjust basis can dramatically overstate taxable gains.

Action step: Always verify and correct the RSU cost basis on Form 8949 before filing.

Leaving a company often triggers some of the most expensive RSU and option mistakes.

In many plans, unvested RSUs stop vesting at termination. Stock options frequently enter a short post-termination exercise window, after which they are forfeited. These windows vary by plan and by reason for departure, and special rules may apply in cases of disability, death, or corporate transactions.

Employees who don’t review equity terms before leaving may unintentionally forfeit valuable compensation or miss critical deadlines. Beneficiary designations and estate considerations are also frequently overlooked.

Action step: Review equity plan documents and post-termination deadlines before submitting a resignation.

The wash sale rule disallows claiming a tax loss if you buy substantially identical stock within 30 days before or after selling it.

What many employees don’t realize is that RSU vesting can count as a purchase, even though no cash changes hands. Automated purchases, ESPP contributions, or a spouse’s account can also trigger wash sales. This most commonly occurs when RSUs vest automatically on a regular schedule while employees are actively trading the same stock.

This can cause capital losses to be disallowed unexpectedly, especially for employees who sell shares at a loss shortly before or after RSUs vest.

To stay compliant, RSU activity must be coordinated with trading activity across all related accounts.

Action step: Track RSU vest dates and avoid buying the same stock within the 61-day wash sale window.

Most RSU-related mistakes come from assumptions and a lack of coordination between payroll, brokerage reporting, and tax planning. A single oversight may not cause a disaster, but repeated over time, these gaps can lead to higher taxes, penalties, and unintended concentration.

Avoiding these outcomes starts with understanding where systems don’t align and planning across taxes, cash flow, and investment exposure. Summitry specializes in equity compensation planning and helps clients integrate RSUs into a broader financial strategy so compensation works as intended.

Are RSUs taxed twice?
No. RSUs are taxed as wages at vest, and only post-vest price changes are taxed when shares are sold. Reporting errors are what create the illusion of double taxation.

Is sell-to-cover enough to cover my taxes?
Oftentimes, no. It satisfies withholding requirements but may not account for your full tax picture.

Why does my 1099-B show a $0 cost basis?
Many brokers do not include vest-date basis for RSUs. You must adjust it to avoid overstating gains.

When does the holding period start for RSUs?
The holding period begins on the vest date, not the grant date.

Why are RSUs taxed at 22%?
22% is the standard federal supplemental withholding rate for most RSU income, not necessarily your actual effective tax rate.

Should I sell my RSUs when they vest?
There’s no universal right answer. The right choice depends on taxes, risk tolerance, and portfolio goals. Summitry can help you assess the tradeoffs and decide intentionally rather than by default.

How do you avoid tax on RSUs?
The value of vested RSUs is treated as wage income and taxed just like a salary.

What you can control is how efficiently those taxes are handled. Effective RSU planning focuses on proper reporting to avoid double taxation, understanding whether withholding is sufficient, managing the timing of sales to control capital gains, and deciding how much company stock to hold to maintain an appropriate level of risk. In some cases, coordinating RSUs with other income, deductions, or charitable strategies can also reduce the overall tax impact of vesting events and sales.

This material is intended for general informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice. It does not consider the specific investment objectives, tax and financial condition or needs of any specific person. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Investing involves the risk of loss, including loss of principal.