Short answer
When your RSUs vest, the IRS counts their full market value that day as ordinary income, exactly like a cash bonus. Your employer usually withholds only 22%, but if your total compensation puts you in the 32–35%+ bracket, you owe the difference when you file in April. Fix it early by filing a new W-4 with extra withholding. Selling the shares later is a separate capital-gains event.
Your visa doesn't change how RSUs are taxed
This is the single most common misconception. An H1B, L1, or E2 holder who meets the substantial presence test (roughly, more than ~183 days in the US over a rolling period) is a resident for tax purposes and is taxed on RSUs identically to a US citizen. There is no special "visa tax" on equity.
The only people taxed differently are non-resident aliens (typically your first partial year, or people here very briefly), and even then it's about residency status, not the visa label. For most engineers on a full-year assignment, you're a resident and the rules below apply.
RSUs are taxed twice: at vesting and at sale
1. At vesting — the day shares vest, their full market value is added to your income for the year, taxed at your ordinary rate (the same as salary). This happens whether or not you sell.
2. At sale — when you later sell the shares, you owe capital gains tax only on any increase in value since the vest date. If you sell immediately at vest, there's little or no gain, so usually little or no second tax.
The 22% withholding trap
Employers withhold tax on RSUs at the IRS supplemental rate of 22% (it jumps to 37% only on amounts over $1M). But your actual marginal rate is often higher once RSUs stack on top of a six-figure salary. That difference becomes a surprise bill in April.
| RSUs vested this year | Withheld at 22% | Owed at 35% | April shortfall |
|---|---|---|---|
| $50,000 | $11,000 | $17,500 | $6,500 |
| $100,000 | $22,000 | $35,000 | $13,000 |
| $200,000 | $44,000 | $70,000 | $26,000 |
Illustrative only; your real rate depends on total income, filing status, and state. Add state tax on top in CA, NY, and similar.
How to close the gap before April
- File a new W-4 in your first weeks and request additional withholding (Step 4c) so the shortfall doesn't pile up.
- Make estimated tax payments quarterly if the gap is large — it also avoids IRS underpayment penalties.
- Set the cash aside. A simple rule: park ~13% of every RSU vest (the rough 35% − 22% gap) until you've filed.
- Use sell-to-cover wisely. Most plans automatically sell some shares to cover the 22% — but that only covers 22%, not your real rate.
Don't forget state tax — especially if you move
States like California and New York tax RSU income too, and the rules get tricky if you change states between grant and vest: part of the income can be "sourced" to the state where you worked while the RSUs were earned. If you relocate, keep your vest dates and work locations documented.
Frequently asked
Do H1B holders pay more tax on RSUs than US citizens?
No. If you're a resident for tax purposes (which most full-year H1B holders are), your RSUs are taxed exactly the same as a citizen's. The visa is irrelevant to the tax rate.
Do I owe tax on RSUs if I don't sell them?
Yes. RSUs are taxed as ordinary income when they vest, regardless of whether you sell. Selling later is a separate capital-gains event on any gain since vesting.
Should I sell my RSUs as soon as they vest?
Many advisors suggest selling at or near vest to avoid over-concentration in your employer's stock and because there's little or no extra capital-gains tax at that point. It's a personal decision, not tax advice.
What is sell-to-cover?
Your plan automatically sells enough vested shares to cover the 22% tax withholding. It's convenient but only covers the supplemental rate, so you may still owe more if your bracket is higher.