What Is the RSU Offset on Your Paystub?

A paystub details an employee’s earnings, deductions, and net pay. It shows how gross wages are calculated and what amounts are withheld for taxes and benefits. While most entries are straightforward, equity awards like Restricted Stock Units (RSUs) can introduce unfamiliar line items.

Understanding Restricted Stock Units

Restricted Stock Units (RSUs) are a form of equity compensation granted by companies. An RSU represents a promise to deliver company stock or its cash equivalent at a future date, provided certain conditions are met, such as continued employment or achieving performance milestones.

RSUs do not have tangible value until they vest, meaning restrictions are removed and the employee gains full ownership. Vesting schedules vary; a common structure involves a portion vesting annually over several years, like 25% per year over four years. Until vesting, employees do not own the shares and typically do not have voting rights or receive dividends.

Taxation of RSU Vesting

When Restricted Stock Units vest, their fair market value is considered ordinary income. This income is subject to federal, state, local (if applicable), and payroll taxes (FICA), similar to how regular wages are taxed.

Employers typically handle these tax withholdings directly. A common method is “sell-to-cover,” where a portion of vested shares are automatically sold to cover the employee’s tax obligations. For federal income tax, the withholding rate for supplemental wages like RSUs is often 22% for amounts under $1 million. The employer then remits these funds to the appropriate tax authorities.

The RSU Offset Entry

The “RSU Offset” on a paystub is an accounting entry used to reconcile RSU income. When RSUs vest, their value is added to an employee’s gross taxable wages for tax reporting, even though the employee does not receive this value as cash. This ensures the RSU value is correctly reported for tax purposes and appears on the employee’s W-2 form.

Since taxes on vested RSUs are usually paid by selling shares (“sell-to-cover”) rather than deducted from regular cash wages, the RSU offset balances this non-cash transaction. It functions as a non-cash deduction that effectively removes the RSU value from the cash portion of gross pay. This adjustment prevents double-counting RSU income or overstating cash wages received.

Interpreting Your Paystub with RSU Income

When RSUs vest, your paystub will reflect the fair market value of the vested shares as an addition to your gross income. This figure includes your regular salary plus the RSU value. Its inclusion is necessary for accurate tax reporting, even though you do not receive the RSU value as cash.

You will then see deductions for federal, state, local, and FICA taxes withheld from this total gross income. The RSU offset entry will appear as a deduction, equal to the value of the vested RSUs added to your gross pay. This ensures that your net pay reflects your cash wages minus all applicable deductions, with the RSU transaction properly accounted for without affecting your take-home cash. The RSU income and associated withholdings will also be reported on your W-2 form.