What RSUs Do to High Earners’ Taxes

(And What Most People Miss)

In Grosse Pointe and across the Detroit executive corridor, Restricted Stock Units are common compensation.

They feel like a bonus.

They behave like a tax event.

And for high earners, they quietly create structural tax problems if not managed deliberately.

Here is what RSUs actually do to your taxes — and what most people overlook.

1. RSUs Are Taxed as Ordinary Income — Not Capital Gains

This is the first misconception.

When RSUs vest, the value of the shares is treated as W-2 income.

Not capital gains.

Not preferential rates.

Ordinary income.

If you are already earning $500,000 or more annually, those vested shares are being layered on top of:

• Federal marginal tax brackets

• Michigan income tax

• Medicare surtaxes

• Possible IRMAA exposure

Many companies automatically withhold shares to cover taxes.

The problem is the default withholding rate is often insufficient for high earners.

The result?

A surprise tax bill in April.

2. RSUs Quietly Push You Into Higher Medicare and NIIT Exposure

High earners often underestimate the downstream effects.

RSU vesting increases Adjusted Gross Income.

That can trigger:

• 3.8 percent Net Investment Income Tax

• Higher Medicare Part B and Part D premiums two years later

• Reduced tax flexibility for Roth conversions

These are not catastrophic individually.

But compounded annually, they meaningfully increase lifetime tax drag.

Most executives never model this.

They just accept the vesting schedule.

3. Holding Vested RSUs Creates Concentration Risk

After vesting, shares become yours.

From that moment forward, holding them is an active investment decision.

Yet many executives hold because:

• They are loyal to the company

• They believe in future growth

• Selling feels disloyal

• They assume it is “long-term capital gains now”

But remember:

You already paid ordinary income tax at vest.

Holding the shares is no different than choosing to purchase them at that price.

If a large portion of your net worth is tied to:

• Your salary

• Your bonus

• Your RSUs

• Your 401k stock exposure

Then you are concentrated in one economic engine.

That may feel safe while employed.

It is rarely prudent long term.

4. Executives Rarely Coordinate RSUs With Broader Tax Planning

Most high earners manage RSUs in isolation.

They do not integrate them with:

• Taxable brokerage rebalancing

• Donor-advised fund strategies

• Roth conversion timing

• Capital gain harvesting

• Real estate decisions

For example:

If you are planning to sell a Northern Michigan property, realizing large RSU income in the same year could stack ordinary income and capital gains inefficiently.

If you are charitably inclined, gifting appreciated shares instead of cash may be materially more tax efficient.

If vesting schedules are heavy in certain years, retirement timing could be coordinated accordingly.

These are structural decisions.

Most executives default to autopilot.

5. RSUs Distort Retirement Readiness Perception

This is more subtle.

High earners often feel financially secure because:

• Income is strong

• Vesting is consistent

• Stock price has performed well

But RSUs are not guaranteed income.

They are conditional compensation.

When retirement approaches, vesting stops.

Suddenly, the household transitions from: High W-2 plus RSU income to portfolio-based income only without planning, that shift feels abrupt.

Executives who integrate RSU liquidation and diversification gradually over years tend to transition smoothly.

Those who ignore it often face concentrated risk right at retirement.

What Most High Earners Miss

RSUs are not just compensation.

They are:

• Tax accelerators

• Income stackers

• Concentration builders

• Retirement transition variables

In Grosse Pointe, many high earners have:

• $3M+ net worth

• Significant taxable accounts

• Multiple properties

• Legacy goals for children

RSUs should be integrated into:

• Long-term tax modeling

• Estate coordination

• Charitable strategy

• Diversification planning

Not treated as annual noise.

The Right Question

The question is not:

“Should I hold or sell my RSUs?”

The better question is:

“How do my RSUs fit into my long-term tax structure and risk profile?”

For high earners, ignoring that question is expensive.

If you are receiving meaningful RSU compensation and have not modeled how it affects:

• Lifetime taxes

• Medicare exposure

• Diversification

• Retirement income transition

That is worth reviewing deliberately.

Because once vesting becomes income, the tax clock is already running.