How sell-to-cover works
When restricted stock units vest, the entire market value of the vested shares counts as ordinary income that day — exactly like a cash bonus paid in stock. Your employer must withhold tax on it, and the near-universal mechanism is sell-to-cover: the broker sells just enough of your new shares, at market, to cover the withholding, and deposits the rest in your account.
Because brokers can only sell whole shares, they round the number of shares up. The sale raises slightly more than the tax due, and the difference comes back to you as cash. If the stock is sold at a lower price than the vest price, more shares are needed; the calculator above handles both cases.
A worked example
Say 100 shares vest at $150. Your gross taxable income is $15,000. At the 22% US federal supplemental rate, $3,300 must be withheld. $3,300 ÷ $150 = 22 shares sold, 78 shares kept, and $0 left over because it divides evenly. At $153.27 instead, 120 vesting shares create $18,392.40 of income and $4,046.33 of withholding — 27 shares are sold (26 wouldn’t quite cover it) and $91.96 comes back as cash.
The double-taxation trap: check your 1099-B
Here is where RSU holders lose real money. The shares you keep have a cost basis equal to the vest-date price — you already paid income tax on that value. But brokers frequently report a basis of $0(or the amount you “paid”, which is nothing) on the 1099-B when you eventually sell. If you copy that number onto your return, the entire sale price is taxed as a gain — income you were already taxed on at vest gets taxed a second time.
The fix at filing time is a basis adjustment on Form 8949 (code B), using vest-date price × shares. The fix for every future year is keeping a correct per-lot record from the day each tranche vests — which is exactly what NextVest does for you.
FAQ
What does sell-to-cover mean for RSUs?
When RSUs vest, their full market value is taxable income. With sell-to-cover, your employer or broker automatically sells just enough of the newly vested shares to pay the tax withholding, and you keep the rest. No cash leaves your pocket; you simply receive fewer shares.
How many shares are sold to cover taxes?
Withholding due divided by the sale price, rounded up to a whole share. Example: 100 shares vest at $150 (gross income $15,000). At 22% withholding, $3,300 is due, so 22 shares are sold and you keep 78.
Why does my broker show a $0 cost basis for RSU shares?
Brokers often report only what you paid in cash for the shares — nothing — instead of the market value you were already taxed on at vest. Your true basis is the vest-date price times shares kept. If you file with the $0 figure, you pay tax on the same income twice.
Is 22% withholding enough?
Not always. 22% is the US federal flat rate for supplemental income up to $1M (37% above that). If your marginal rate is higher, the shortfall is due with your return — many RSU holders owe money in April because of this gap.
What happens to the leftover cash after the covering sale?
Because only whole shares can be sold, the sale usually raises slightly more than the tax due. The difference is refunded to your brokerage account as cash.