How RSUs Are Taxed: A Guide for H1B and GC Holders
By WealthyDesis Team · August 6, 2026
If you’re an H1B or green card holder at a company that pays part of your compensation in restricted stock units (RSUs), here’s the one rule that matters most: you owe ordinary income tax on the full value of your shares the moment they vest — not when they’re granted, and not when you sell them. That single fact drives almost every planning decision that follows, from how much lands in your paycheck to how big a tax bill you’ll see the following April.
What actually happens at grant, vest, and sale
An RSU grant is a promise, not a payment. When your offer letter says “4,000 RSUs vesting over 4 years,” you own nothing yet — there’s no taxable event and nothing to report. The grant date only matters for setting your vesting schedule.
Vesting is the tax trigger. Most tech companies use a four-year schedule with either a one-year cliff (25% vests on your first anniversary, then monthly or quarterly after) or even quarterly vesting from day one. On each vesting date, the fair market value (FMV) of the shares that vest that day is added to your W-2 as ordinary wages — treated exactly like a cash bonus, even though you received stock instead of cash.
Sale is a second, separate tax event. Once shares vest, your cost basis is set at the FMV on the vesting date, because that value was already taxed as income. If you sell immediately, there’s usually little or no additional gain. If you hold and the stock rises, the appreciation since vesting is taxed as a capital gain — short-term (ordinary rates) if sold within a year of vesting, long-term (0%/15%/20% depending on income) if held longer.
Worked example: a $150,000 salary with a $60,000 vest
Say you’re an H1B employee at a mid-size tech company earning a $150,000 base salary. Your grant vests 1,000 shares this quarter, and the stock trades at $60 on the vesting date.
- Taxable ordinary income added: 1,000 shares × $60 = $60,000
- New total W-2 wages for the year (assuming this is your only vest): $150,000 + $60,000 = $210,000
- Cost basis per share going forward: $60 (the vest-date FMV)
That $60,000 isn’t a separate, lightly-taxed windfall — it’s stacked directly on top of your salary and taxed at your marginal rate for that income level, same as if your employer had handed you a $60,000 check. If the stock is at $75 six months later and you sell, you’d report a short-term capital gain of ($75 − $60) × 1,000 = $15,000, taxed at your ordinary rate because you held less than a year from vest.
Why your paycheck withholding won’t match this bill
Employers generally withhold RSU income at the IRS’s flat supplemental-wage rate — 22% federal on amounts up to $1 million in supplemental wages for the year, jumping to 37% above that (IRS Publication 15, Section 7). Social Security tax (6.2% up to the annual wage base) and Medicare (1.45%, plus an additional 0.9% above $200,000 single) apply on top.
The problem: 22% is a withholding convenience, not your actual tax rate. If your combined salary-plus-vest income pushes you into the 32% or 35% federal bracket, the 22% withheld on your RSU income falls well short of what you’ll actually owe — a gap you only discover at tax filing, sometimes with an underpayment penalty attached. This mismatch is common enough at RSU-heavy employers that it gets its own article; see “Why Your RSU Tax Withholding Falls Short” for the mechanics of closing that gap before it becomes a surprise bill.
The immigration-specific wrinkle
For a U.S. citizen colleague with the identical grant, RSU income is just income. For an H1B holder, the same shares carry a layer of risk a citizen doesn’t have: your ability to keep vesting depends on your employer continuing to sponsor your status. A layoff doesn’t just end your paycheck — unvested RSUs are typically forfeited immediately (there’s no tax consequence on forfeited shares, since you never paid tax on them), and you’re simultaneously working against USCIS’s 60-day grace period to secure a new sponsor, change status, or leave the country. Vested shares, by contrast, are yours regardless of what happens to your visa — one more reason not to treat “vested but unsold” RSUs as untouchable.
What happens if this is mismanaged
- Underpaying quarterly estimated taxes: if your 22%-withheld RSU income pushes your effective rate above what was withheld, the IRS can charge an underpayment penalty even if you pay in full by April 15 — the penalty is calculated on the shortfall during the year, not just the year-end balance.
- Assuming grant date matters for taxes: some employees track their grant date thinking it starts a capital-gains clock — it doesn’t. Only the vest date starts your holding period and sets your cost basis.
- Treating vest-date FMV as sale price: if you don’t sell immediately, brokers sometimes report an incomplete cost basis on Form 1099-B at sale, causing you to accidentally pay income tax and capital gains tax on the same value unless you correct the basis on Form 8949.
- Letting concentration build silently: each vest adds another slice of a single employer’s stock to your net worth on top of your paycheck and, for H1B holders, your visa — a risk that compounds quietly if you never sell.
- Missing the layoff timing: not knowing that unvested RSUs are typically forfeited the moment employment ends can mean losing a grant you were 30 days from vesting, with no recourse once you’re off payroll.
Sources: IRS Publication 525 (Taxable and Nontaxable Income); IRS Publication 15 (Circular E), Section 7, Supplemental Wages.
Frequently asked questions
Do I pay tax on RSUs when they're granted or when they vest?
Neither grant nor sale — you owe ordinary income tax the moment shares vest, based on the fair market value that day. Selling later triggers a second, separate tax event on any gain or loss since vesting.
Can I file an 83(b) election on RSUs to lower my tax bill?
No. An 83(b) election only applies to restricted stock you actually receive and could forfeit, like early-exercised options. RSUs involve no transfer of property at grant, so there's nothing to elect against.
Does my H1B status affect how RSUs are taxed?
The tax mechanics are identical to a U.S. citizen's. What's different is the risk profile: your equity, your paycheck, and your visa sponsorship all run through the same employer, which changes how much of a concentrated position makes sense to hold.
Written by WealthyDesis Team
Reviewed for accuracy against current IRS and USCIS guidance at time of publishing.
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