Your equity plan sends you a vesting notice, a chunk of shares lands, and your paycheck app shows a tax bill you didn’t budget for. The generic advice — “diversify out of your employer’s stock” — never mentions that you might also be diversifying out of the country. Here’s the version that accounts for that.
The 60-second version
RSUs are taxed as ordinary wage income on the day they vest, at the shares’ fair market value — not when you sell. Your employer withholds at a flat supplemental rate (22% up to $1 million in supplemental wages for the year, 37% above that), which is usually lower than your real marginal rate, so many people owe more at tax time. Once vested, any further gain or loss when you sell is a capital gain, taxed at ordinary rates if held under a year or at the lower long-term rates (0/15/20%) if held longer. If you leave the US before you sell, US capital gains tax on the sale generally disappears for a true non-resident — but India (or wherever you land) will likely tax that same gain, and the vesting income itself can get taxed twice if your vest date and your move don’t line up cleanly. The fix in both directions is timing and the tax treaty, not guessing.
How RSU taxation actually works
Two separate tax events, easy to conflate:
- Vesting. The full value of the shares on vest day is added to your W-2 as ordinary income, whether or not you sell. Say 100 shares vest at $50 — that’s $5,000 of taxable wages, same bracket as your salary. Your cost basis in those shares is now $50/share.
- Sale. Any move in price after vesting is a capital gain or loss. Sell the day it vests and there’s usually little to no gain. Hold, and the difference between the sale price and that $50 basis is what gets taxed as a capital gain.
- You leave the employer. Unvested RSUs are almost always forfeited outright on your last day — there’s no negotiating this after the fact, though a departure package occasionally includes accelerated vesting. Check your grant agreement, not general practice.
- You transfer internally to another country. Unvested RSUs typically keep vesting on schedule. But sourcing changes: the portion of each future vest tied to workdays you spent in the US versus abroad during the vesting period gets taxed differently. A grant that started while you worked in the US and finishes vesting after a transfer abroad is split — the US-workday share is still US-source income (usually still subject to US withholding), and the rest generally isn’t.
- You leave the US but keep the same US job remotely. Rare on a work visa, since remote work from abroad usually isn’t authorized under H-1B/L-1 status — this scenario is more of a legal question than a tax one. If you’re considering it, that’s a visa-compliance conversation before it’s a tax one.
- Set aside more than the withholding. If your marginal rate is above 22%, bank the difference from every vest so tax season doesn’t surprise you.
- Concentrated position, uncertain future? Selling soon after vesting (sell-to-cover or full sale) limits both market risk and cross-border tax complexity — you’re paying tax on income you already owe either way, and locking in a known outcome.
- Planning a move within 1–2 years? Model both sale timings — before departure (known US rates) versus after (potential US exemption, but new-country tax and possibly less certainty) — rather than defaulting to “just hold.”
- Grant still mostly unvested and you might leave the employer? Don’t count unvested value as money in the bank. Plan your finances around what’s already vested.
- “RSUs are only taxed when I sell.” False. Vesting itself is a taxable wage event; sale only taxes the gain since vesting.
- “22% withholding means I owe 22%.” False. That’s a default withholding rate, often below your actual marginal rate.
- “If I leave the US, I don’t owe any tax on my RSUs, ever.” False. You likely already owed US tax at vesting; leaving mainly changes what happens on a later sale, not the vest itself.
- “Unvested RSUs are basically guaranteed money.” False. They’re forfeited if you leave the employer before they vest, visa status permitting.
The catch is withholding. Employers default to the IRS supplemental wage rate — 22% federal, on top of state and FICA — regardless of your actual bracket. On that $5,000 vest, $1,100 gets withheld. If your real marginal rate is 32%, you actually owe $1,600 on that income, a $500 gap you’ll pay (or should set aside for) at filing. The higher your total comp, the bigger this gap tends to be, and once your cumulative supplemental wages from one employer cross $1 million in a calendar year, withholding jumps to 37%.
Sell-vs-hold, with a possible move on the table
The standard advice — hold long-term for the lower capital gains rate, diversify gradually — assumes you’ll still be a US tax resident when you sell. That assumption breaks if you might leave. Take 100 shares that vested at $50 (already taxed as $5,000 of wages) and are now worth $70, a $2,000 gain:
| Path | If you stay a US resident | If you sell after becoming a non-resident |
|---|---|---|
| Sell immediately (short-term) | $2,000 gain taxed at your ordinary rate — roughly $440–$740 for most H-1B earners | Rarely applies — you’d need to already be a non-resident, which usually means you left before this vest |
| Hold 12+ months, then sell (long-term) | Taxed at 0/15/20% depending on income, plus 3.8% NIIT above ~$200K (single) MAGI — roughly $300–$400 typically | US capital gains tax on the sale generally does not apply to a genuine non-resident alien selling US stock — but your new country of residence usually taxes the same gain |
That middle-right cell is the one people miss: leaving the US and then selling can mean zero US tax on the appreciation — but it is not free. India taxes its residents on worldwide income, and once you’re back and tax-resident there, this gain is taxable in India as a capital gain, with your acquisition cost generally anchored to the vest-date value already taxed as salary. If you land back during your RNOR window (roughly the first two to three years after returning, for those who were non-resident long enough beforehand), certain foreign income can be outside India’s tax net during that period — which is exactly why the sale timing matters as much as the vest timing. The exact rate, holding-period rules, and RNOR qualification depend on your specific facts and change with each Finance Act, so confirm the current numbers with a cross-border CPA before you time a sale around a move.
What happens to unvested grants when you exit
The double-tax trap, and how the treaty helps
The friction shows up when your vest date and your residency status don’t match cleanly across two countries. A common version: you vest RSUs while a US tax resident (full US tax on the wage income), then later that same year become an Indian tax resident again — India taxes residents on worldwide income for the year, which can technically reach income earned before you even moved, depending on the facts and the year’s residency rules. The US–India tax treaty and India’s foreign tax credit mechanism (claimed via Form 67 in India, matched against Form 1116 on the US side) are built to prevent double taxation, but they require the income to be characterized and reported consistently in both countries and within the right tax years — mismatches are the single biggest source of double-tax headaches for equity comp. This is a case where DIY filing software routinely gets it wrong; it’s worth a cross-border CPA in the year you both vest and move.
A simple decision framework
Common myths, quickly
Related reading: Investing on a Visa, The US–India Tax Treaty, Translated, and What Happens to Your Roth IRA If You Move Back to India. For the weekly issue that walks through one question like this at a time, see the newsletter.
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Education, not advice. WealthyFied publishes general financial education for immigrants in the US. Nothing here is personalized investment, tax, or legal advice — your situation is unique, so run big decisions past a qualified cross-border professional. Some links are affiliate links; see our disclosure.