RSUs: the double-taxation trap

When restricted stock units vest, their full value is taxed as wages and included on your W-2, whether or not you sell. That value becomes your cost basis in the shares.

The problem comes when you sell. Brokers often report RSU sales on Form 1099-B with no basis or an incomplete basis. If your return uses that number, you pay tax on the same income twice. The fix is an adjustment on Form 8949 using your broker's supplemental information, which we handle as a matter of course.

Withholding is the other common surprise. Employers usually withhold federal tax on vesting RSUs at the flat 22% supplemental rate (37% above $1 million), which is often less than your actual rate. Large vests can call for estimated payments.

Non-qualified stock options (NQSOs)

When you exercise an NQSO, the difference between the market value and your exercise price is taxed as ordinary wage income. Your basis in the shares is the exercise price plus that amount. Any later change in value is a capital gain or loss.

Incentive stock options (ISOs) and the AMT

Exercising ISOs doesn't create regular taxable income, but the spread at exercise counts for the alternative minimum tax. Starting in 2026, the 2025 tax law makes the AMT exemption phase out faster for higher earners (beginning at $500,000 of AMT income for single filers and $1,000,000 for joint filers, at a 50% rate), so large ISO exercises are more likely to trigger AMT than in recent years.

To receive the most favorable treatment, ISO shares must be held more than two years from the grant date and more than one year from exercise. Selling earlier is a disqualifying disposition, and part of the gain becomes ordinary income. We model the AMT and the holding-period trade-offs before you exercise.

Employee stock purchase plans (ESPP)

Qualified ESPPs let you buy shares at a discount of up to 15%. How much of your gain is taxed as ordinary income depends on whether you meet the holding periods: two years from the offering date and one year from the purchase date. As with RSUs, the basis your broker reports often needs adjusting.

New Jersey, New York and moving between them

New York taxes nonresidents on the portion of equity compensation tied to days worked in New York, generally measured over the period from grant to vesting. That means you can owe New York tax on RSUs or options years after you stopped working there or moved away. New Jersey residents who pay New York tax can generally claim a credit on their New Jersey return. We prepare the multi-year allocation and make sure the credit is claimed.

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Frequently asked questions

Why does my RSU income look like it's being taxed twice?

Your RSUs were taxed as wages on your W-2 when they vested, and the broker's Form 1099-B may show little or no cost basis when you sell. Unless the basis is corrected on Form 8949, the same income is counted twice.

Do I owe tax when RSUs vest even if I don't sell?

Yes. The full value of the shares at vesting is ordinary wage income in the year they vest, whether you keep or sell them.

Is the 22% withholding on my RSUs enough?

Often not. Federal withholding on supplemental wages is typically a flat 22% (37% above $1 million), which can be well below the actual rate for higher earners. Estimated payments may be needed to avoid an underpayment penalty.

Should I exercise my ISOs this year?

It depends on the spread, your other income, your AMT exposure and how long you plan to hold the shares. Because the AMT exemption phases out faster starting in 2026, it's worth modeling the exercise before you act.

I used to work in New York but now live and work in New Jersey. Can New York still tax my equity?

Yes. New York generally taxes the portion of option and RSU income attributable to days you worked in New York between grant and vesting, even after you leave. New Jersey residents can generally claim a credit for the New York tax paid.