RSU tax for Indian employees at US tech companies: the W-2 guide

If you are an Indian national working at Google, Amazon, Microsoft, Meta, Salesforce, or another US tech company on an H-1B visa or green card, RSUs are likely a significant part of your compensation — often 30–50% of total comp at senior levels.

The US taxes RSUs differently from how India taxes them, and at different rates from what most people expect. This guide covers the full RSU tax lifecycle at a US tech company: vest, hold, sell, ESPP, and what happens to your India picture.

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How US tech companies grant equity

Most large US tech companies use one of three equity instruments:

Instrument	Who uses it	Tax at vest/exercise
RSUs (Restricted Stock Units)	Google, Amazon, Microsoft, Meta, Salesforce, Netflix, most public tech	Ordinary income at vest — W-2
NSOs (Non-Qualified Stock Options)	Some public companies, most pre-IPO startups	Ordinary income at exercise — W-2
ISOs (Incentive Stock Options)	Pre-IPO startups, some public companies	No regular tax at exercise; possible AMT

This guide focuses on RSUs, which is what the vast majority of Indian employees at established US tech companies receive. ISOs and NSOs are covered briefly at the end.

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At vest: ordinary income on your W-2

When your RSUs vest, you receive shares. The IRS treats this exactly like receiving cash compensation:

Tax at vest = FMV on vest date × number of shares vested

This amount is added to:

• Box 1 of your W-2 (wages)
• Box 3 (Social Security wages, up to the wage base — $176,100 in 2026)
• Box 5 (Medicare wages — no cap)

Withholding at vest

Your employer is required to withhold taxes when RSUs vest. Most large US tech companies do this through share withholding (sell-to-cover):

• They vest, say, 100 shares
• They immediately sell ≈22 shares to cover the estimated tax
• You receive ≈78 shares in your brokerage account

The withholding rate on supplemental wages (RSUs) is:

• 22% for the first $1 million in supplemental wages in the year
• 37% above $1 million in supplemental wages

The withholding gap

This is the most common tax surprise for Indian tech employees at senior levels.

If your total compensation (salary + RSU vest) puts you in the 32% or 37% bracket, the 22% withholding is insufficient. You owe the difference when you file.

Example: Base salary: $220,000 (taxed at your marginal rate via regular withholding) RSU vest (Q1): 50 shares × $180 = $9,000 RSU vest (Q2): 50 shares × $190 = $9,500 RSU vest (Q3): 50 shares × $195 = $9,750 RSU vest (Q4): 50 shares × $200 = $10,000 Total RSU income: $38,250

Your effective federal marginal rate on the last dollar of income: 35% (approximate, after deductions at $258,250 total income). Withholding on RSUs: 22% × $38,250 = $8,415 Tax actually owed: 35% × $38,250 = $13,388

Shortfall: $4,973 owed at filing, before state taxes.

At L5/L6 at Google or equivalent, where RSU vests can be $150K–$300K annually, the shortfall can easily be $30K–$60K. Running quarterly estimated tax payments (Form 1040-ES) or adjusting your W-4 prevents this.

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After vest: holding and selling

Once you hold RSU shares, they are treated like any other stock you own:

Cost basis

Your cost basis per share = FMV on the vest date (the same value included in your W-2).

If you sell immediately at vest, your capital gain is approximately zero (sale price ≈ vest FMV). This is why many financial advisors suggest selling RSUs on or near vest date — you have already paid ordinary income tax on the full value; there is no additional tax at a same-day sale.

Capital gains on future appreciation

If you hold shares and sell later:

• <12 months from vest → short-term capital gain → taxed at ordinary income rate (up to 37%)
• >12 months from vest → long-term capital gain → taxed at 15% (most incomes) or 20% (above ~$518,900)
• NIIT: Additional 3.8% Net Investment Income Tax if MAGI > $200,000 (single) or $250,000 (married filing jointly)

Should you hold RSU shares?

This is a personal finance question with a tax component. From a pure tax standpoint:

• Holding >12 months converts future gains from ordinary income to LTCG, saving up to 22% (37% vs. 15%) on the appreciation above the vest price
• But you take on concentrated single-stock risk
• If the stock falls, you cannot recover the ordinary income tax you paid at vest

For most Indian tech employees, a practical approach is:

• Sell a portion of each vest immediately (to avoid concentrating income in a down year)
• Hold some for >12 months if you believe in the company long-term

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ESPP (Employee Stock Purchase Plan)

Many large US tech companies offer ESPPs alongside RSUs — particularly Microsoft, Adobe, Salesforce, and Cisco.

How ESPP works at a typical US company

• You contribute up to 15% of salary (capped at $25,000/year by IRS limit for qualified ESPPs)
• The plan runs in offering periods (typically 6 or 24 months)
• At the end of each purchase period, shares are purchased at a 15% discount from the lower of the price at offering start or purchase date (known as a "look-back provision")

Tax treatment

ESPP tax depends on whether the shares are qualifying or disqualifying dispositions:

Qualifying disposition (held >2 years from offering date AND >1 year from purchase date):

• Ordinary income = the lesser of (a) actual discount at purchase or (b) 15% of FMV at offering date
• Remaining gain = LTCG

Disqualifying disposition (sold within the required holding periods):

• Ordinary income = FMV at purchase date minus your purchase price
• This ordinary income appears on your W-2

Most Indian tech employees who sell ESPP shares quickly (for liquidity) have disqualifying dispositions. The 15% discount plus any appreciation between purchase and sale is ordinary income, reported on W-2 by the employer.

Common mistake: Not reconciling ESPP income reported on W-2 with the 1099-B cost basis shown by your broker. Brokers often show the original purchase price as cost basis — without adjusting for the ordinary income already included in your W-2. This leads to double-counting and overpaying capital gains tax. Your adjusted cost basis = original purchase price + ordinary income recognized.

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ISOs (Incentive Stock Options) — brief overview

ISOs are more common at pre-IPO startups than at established tech companies. If you joined a startup pre-IPO:

• At grant: No tax
• At exercise: No regular income tax; but the spread (FMV minus strike price) is an AMT preference item and may trigger Alternative Minimum Tax
• At sale, if qualifying disposition (held >2 years from grant and >1 year from exercise): LTCG on the full spread
• At sale, if disqualifying disposition: Ordinary income on the spread at exercise; LTCG (or STCG) on remaining appreciation

ISOs with AMT are significantly more complex, especially if you join a startup with a low strike price and exercise when the FMV has risen substantially before IPO. Get dedicated CPA advice for ISOs.

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What appears on your W-2: decoding the boxes

For most H-1B employees at US tech companies with RSUs:

W-2 Box	What is in it
Box 1 (Wages)	Salary + RSU vest income + ESPP ordinary income
Box 3 (SS wages)	Same as Box 1, capped at $176,100
Box 5 (Medicare wages)	Same as Box 1, no cap
Box 12 Code W	Employer HSA contributions (if any)
Box 14	RSU vest amount (informational, some employers)
Box 17 (State wages)	California / New York equivalent if applicable

Verify that your W-2 Box 1 matches your records of salary plus all RSU vests. If it looks low, your RSU income may have been missed — this means you underpaid tax, not that you got lucky.

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State income tax: California and New York

For the large number of Indian tech employees in California (Bay Area) or New York:

California:

• State income tax at 9.3% for income between $66,295–$338,639; 10.3% up to $406,364; 11.3% up to $677,275; 12.3% above that; 1% Mental Health surcharge above $1M
• California taxes RSU income at the California source fraction — if you vested while a California resident, that income is California-source regardless of when you sell
• California does not recognize LTCG rates — all gains taxed as ordinary income at state level

New York:

• State income tax at 8.82% for highest earners; NYC adds up to 3.876%
• Combined NYC + NY state rate can reach 12.7% on top of federal

The combined federal + California effective rate on RSU vest income at senior tech employee levels can reach 50%+ (37% federal + 12.3% state + 1.45% Medicare).

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Returning to India: what happens to your unvested RSUs

If you leave your US tech company and return to India — voluntarily or due to visa issues — unvested RSUs present a specific problem.

RSU allocation across countries

If you work partly in the US and partly in India (say, you transfer or return mid-year), some portion of each RSU grant is US-sourced and some is India-sourced. The allocation is generally based on the ratio of your workdays in each country during the vesting period.

Example: You have a 4-year RSU grant. You worked in the US for 2 years and then transferred to an India office for 2 years. Shares vesting after the transfer are 50% US-sourced (2 years US / 4 years total). The US-sourced 50% is US taxable; the India-sourced 50% is taxable in India as a perquisite.

This allocation is employer- and tax-treaty-dependent. Large multinationals (Google, Microsoft) have tax teams that calculate this split and report it correctly on your W-2. Smaller companies may not.

Unvested RSUs after termination

If your H-1B is not renewed or you choose to leave:

• Unvested RSUs are typically forfeited
• Some companies have accelerated vesting provisions — check your grant agreement
• RSUs that vest after you leave but within a post-termination exercise window are still taxable as ordinary income; the allocation between US and India source depends on when the work was performed

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Tax filing checklist for Indian tech employees in the US

Annual (for each tax year):

• Reconcile W-2 Box 1 with your records of salary + all RSU vests + ESPP
• Confirm withholding is sufficient — model expected tax at your marginal rate
• If withholding gap exists, make Q4 estimated payment (January 15) or increase W-4 withholding
• Report all foreign account interest (NRE, NRO) on Schedule B
• File FBAR (FinCEN 114) if Indian accounts combined exceeded $10,000
• File Form 8938 if foreign assets exceeded $50,000 (year-end) or $75,000 (any point)
• File Form 8621 for any Indian mutual funds held — see PFIC guide
• Reconcile ESPP 1099-B cost basis — add ordinary income already in W-2 to correct cost basis

When you vest:

• Record FMV on vest date for each lot — you need this for future capital gains calculation
• Verify sell-to-cover shares match the withholding amount
• If holding RSU shares, note the 12-month date for LTCG eligibility

When you sell:

• Identify which lots you are selling (use specific identification for best tax outcome)
• Confirm cost basis with broker — correct if broker shows only original purchase price (ESPP) or incorrect vest-day price

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Related reading

• H-1B to green card: how your US stock tax changes at each stage
• PFIC rules for H-1B Indians: why your Indian mutual funds are a US tax trap
• FBAR and FATCA: which Indian accounts H-1B holders must disclose
• NRE and NRO accounts on H-1B: the complete guide
• 401(k) and IRA when you return to India