Ask An Expert

 How long do I need to hold my RSUs to save on taxes?

Question:

How long do I need to hold my RSUs to save on taxes?

Answer:

One of the most frequent questions that I get from clients is around RSUs and taxation: specifically, how long do I have to hold my shares after they vest for preferential tax treatment. The answer may surprise you: you can sell them immediately!

RSUs can be an amazing part of a compensation package. When your RSUs are granted, they may increase significantly in value before they actually vest. When they do vest, they are treated just like your cash compensation – your company will generally withhold some shares to cover the taxes and then deliver the remaining shares to you. If you then turn around and sell them the same day, there will be no further taxes due.

Confusion often arises from what happens if you hold the shares and they increase in value. In that case, you would be subject to taxes on the difference in value from when the shares vested to the value on the sale date — those are capital gains, and are treated favorably (a lower tax rate) if you hold them for more than a year.

One other note on taxes and RSUs: withholding on RSUs is at the supplemental rate of 22%, which means that many higher earners will not have enough taxes withheld and should make estimated tax payments so that they don’t have a surprise penalty at the filing date.