Updated July 28, 2026. Quick answer: Paying cash saves no tax whatsoever. The bill is fixed at vest under IRC §83(a) and the funding method cannot change it. What paying cash actually does is convert your money into more shares of a single company at that day’s price. It is a concentration decision wearing the costume of a tax decision.
Restate the choice honestly and it answers itself
People frame this as “should I pay the taxes in cash or sell shares.” The economically identical framing is: “at today’s price, do I want to buy more shares of my employer with cash from my bank account?” Because that is exactly what electing cash transfer does. It has the same effect as letting the shares be sold and then immediately buying the same number back.
Almost nobody who chooses cash pay would answer yes to the second framing. If you would not wire that amount to a broker today to buy your employer’s stock at the open, then electing cash pay is a decision you would not make if it were labelled accurately.
What it changes and what it does not
| Cash transfer | Sell to cover | |
|---|---|---|
| Tax owed for the year | Identical | Identical |
| Income reported at vest | Identical | Identical |
| Shares you hold afterwards | All of them | All but the sold portion |
| Cash out of pocket | Yes, the full withholding | None |
| Exposure to your employer’s share price | Higher | Lower |
| Exposure if the company struggles | Your job and more of your savings | Your job and less of your savings |
The case where cash pay is defensible
There is one. If you have already decided, for reasons you can articulate, to hold this position — and you have the cash spare, and you have a written plan for when you will diversify — then funding the withholding with cash rather than shares is a coherent way to execute that decision. The failure mode is choosing it by default, because it feels like keeping something rather than spending something.
The concentration is doubled, not single. Your salary and a growing share of your investments both depend on one company. A decline tends to arrive as a share-price fall and a hiring freeze in the same quarter, which is precisely when you would need the savings.
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.
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.