Do I Pay Taxes on Stock Compensation If I Don't Sell?

Someone on Reddit asked about stocks received as part of compensation, for example at companies like Netflix or Amazon, and whether they owe income taxes if they don't sell the stock. Yes. You do need to pay taxes on stocks received as part of your compensation, even if you do not sell them. The value of the stock is treated as income and is taxable in the year it vests or is granted, depending on the type of stock compensation (e.g., RSUs vs. options). For RSUs, the fair market value at vesting is ordinary income; the tax is triggered when the stock vests and is transferred to you, not when you sell.

Bottom line: Yes. You do need to pay taxes on stocks received as part of your compensation, even if you do not sell them. The value is treated as income and is taxable in the year it vests or is granted, depending on the type (e.g., RSUs vs. options). For RSUs, the fair market value at the time it vests is ordinary income; the tax is triggered at vesting, not at sale. If you hold the stock after vesting and sell later, any gain or loss is capital gain or loss. Your employer will usually withhold on vesting and report it on your W-2; you still report the compensation on your return.

---

Question from Reddit

In US. If I get stocks as part of my compensation. Do I need to pay taxes?

If I work for Netflix or Amazon, or.... and receive stocks. Do I have to pay income taxes if I dont sell stocks?

Source: Reddit

---

Analysis

The user is asking about the tax implications of receiving stocks as part of compensation, specifically whether taxes are owed if they do not sell those stocks. This typically involves stock options or restricted stock units (RSUs) granted as part of employee pay. The key is understanding when the IRS treats the value as income: at vesting/grant or only at sale.

---

Answer

Yes. You do need to pay taxes on stocks received as part of your compensation, even if you do not sell them. The value of the stock is treated as income and is taxable in the year it vests or is granted, depending on the type of stock compensation (e.g., RSUs vs. options).

Why

When you receive stock as part of your pay (e.g., RSUs), the fair market value of the stock at the time it vests is treated as ordinary income, and you owe income tax on that amount. It does not matter whether you sell the stock later; the tax is triggered when the stock vests and is transferred to you. This applies to companies like Netflix, Amazon, and others that grant RSUs or similar equity. The IRS requires you to report the value of that stock as part of your taxable income for the year.

If you hold the stock after vesting and sell later, any additional gain or loss is subject to capital gains tax, based on the difference between the sale price and the fair market value at vesting (your cost basis for the shares).

Planning and reporting

• Your employer will usually withhold federal (and often state) tax on vesting and may report the amount on your W-2. You still must report the compensation and any supplemental income on your return.
• To model the impact of RSU vesting, estimated tax, and later sales, you can use Margen to deep-dive into your situation and prepare your taxes so you're not surprised at year-end.

Related: Does Selling Company Stock Count Toward My Yearly Income and Tax Bracket? · Form 3921 and ISO Exercise: What to Enter on Your Return · Form 83(b) and Restricted Stock Election · ISO Sell-to-Cover: Tax Implications

---

Applicable Sections

Federal / IRS

• IRC § 83: Governs when property (including employer stock) transferred in connection with services is included in income. Generally, the fair market value at vesting is ordinary income.
• Publication 525: Explains taxable and nontaxable income, including stock options and restricted stock (IRS Publication 525).

---

Practical Notes

• RSUs: Tax is due in the year of vesting on the fair market value of the shares; selling later only affects capital gain or loss.
• Stock options (e.g., NQSOs, ISOs) have different rules; grant and exercise vs. sale can trigger different tax events. Consult a tax professional or IRS guidance for your type of grant.
• Withholding: Employers often withhold on vesting; check your pay stub and W-2 to ensure income is reported and enough tax was paid. Use estimated tax if you have large vesting events and insufficient withholding.
• Margen can help you model RSU income, withholding, and capital gains from future sales so you can plan and prepare your taxes accurately.

---

Limitations

This answer does not cover every type of stock-based compensation (e.g., ISO vs. NQSO rules, 83(b) elections, or employer-specific plans). For advice tailored to your grants and situation, consult a tax professional. You can also use Margen to deep-dive into your numbers and prepare your return.