Updated July 28, 2026. Quick answer: Net share settlement is the equity-plan drafting term for the company retaining shares to satisfy withholding. Sell to cover routes the same obligation through a market sale. Whether you are offered a choice between them is a feature of your plan document, not a tax election you can make — and it is often decided by the company’s cash position rather than by anything about you.
Where the term comes from
“Net share settlement” is language from the plan document and the award agreement. It describes how the award settles: gross shares are reduced by the number needed to cover withholding, and the net figure is delivered. Employee-facing portals rarely use that phrase and rename it inconsistently — Fidelity says Net Shares, Morgan Stanley at Work says Withhold shares, Computershare says Withhold to Cover, Carta says net settlement, and Schwab publishes no election label at all. The one reliable test is whether a Form 1099-B arrives.
| Election | What physically happens | Shares sold on the market? | 1099-B? |
|---|---|---|---|
| Net shares / withhold to cover / net settlement | The company keeps some of your vesting shares and remits cash to the taxing authorities | No | No |
| Sell to cover | The broker sells just enough shares on the open market to raise the withholding | Yes, a portion | Yes, for that portion |
| Cash transfer / pay cash | You wire cash; every share is delivered to you | No | No |
| Same-day sale / sell all | Every vesting share is sold immediately | Yes, all of them | Yes |
The part that is genuinely not up to you
Many plans specify a single settlement method and offer no election. Others allow the company to choose per vest. Where an employee election exists, it is a feature the plan chose to grant. If your portal shows no dropdown at the vest, that is not an oversight — your plan settles one way.
Why a company picks one
| Method | Who supplies the withholding cash | Effect on shares outstanding |
|---|---|---|
| Net share settlement | The company, from its own cash | Reduced — withheld shares are not issued |
| Sell to cover | The market, via the broker’s sale | Unchanged — all shares are issued, some immediately sold |
A company conserving cash prefers sell to cover. A company that would rather not have vesting shares hit the market each quarter prefers net settlement. Neither consideration has anything to do with your tax position, which is identical under both.
The one thing that matters more than the election. Withholding is not your tax. It is a deposit against a bill computed later on your whole return. RSU income is a supplemental wage, and Treas. Reg. §31.3402(g)-1 lets an employer withhold on it at a flat percentage — defined by cross-reference to the rate schedule in section 1, not chosen to fit you. Above $1,000,000 of supplemental wages in a year the regulation switches to a mandatory rate equal to “the highest rate of tax applicable under section 1”. Below that threshold the flat rate is well under the top bracket, so a high earner is structurally under-withheld no matter which election is chosen.
The one consequence that reaches your return
Only the market-sale route produces a Form 1099-B, and only that form carries the basis problem.
Wherever shares are sold, check the basis on the 1099-B. The Form 1099-B instructions are explicit that a broker “cannot increase initial basis for income recognized upon the exercise of a compensatory option or the vesting or exercise of other equity-based compensation arrangements granted or acquired after 2013” (Treas. Reg. §1.6045-1(d)(6)(ii)(A), whose operative words are that a broker “may not increase” initial basis for that income). That is a prohibition, not an option. Note what the date attaches to: when the award was granted or acquired, not when you got the stock — for pre-2014 grants a broker may include the compensation element, which is why 1099-Bs are inconsistent rather than uniformly wrong. This is how the same money gets taxed twice.
Sources
IRC §83(a); Treas. Reg. §1.61-2(d)(2)(i) (basis of compensatory shares, the cleanest authority for shares delivered already vested), with Treas. Reg. §1.83-4(b)(1) as support; Treas. Reg. §31.3402(g)-1 (supplemental wage withholding); Treas. Reg. §1.6045-1(d)(6)(ii)(A) and the Instructions for Form 1099-B, current edition (broker basis reporting). Election labels taken from participant-facing documentation published by Fidelity, Morgan Stanley at Work / E*TRADE, Computershare and Carta, read July 2026; Schwab publishes no election labels.
This states what the cited authority says and what plan documents actually do. It is not tax advice, and your employer’s plan controls which of these elections you are offered at all.