Restricted Stock Units (RSUs)

Company shares granted to employees that vest over time and are taxed as ordinary income when they vest.

Restricted Stock Units (RSUs) are a form of equity compensation where an employer promises to give an employee a set number of company shares at a future date, provided they meet the vesting conditions — primarily continued employment through each vesting event.

Unlike stock options, RSUs always have value as long as the company's stock is worth anything. When RSUs vest, you receive shares and owe income tax on their fair market value at the time of vesting — not at the grant date, and not when you sell. This creates a taxable event at each vesting.

Most RSU grants include a 1-year cliff followed by monthly or quarterly vesting over the remaining 3 years. RSUs at public companies are real, liquid compensation that shows up on your W-2 each year. RSUs at private companies are fundamentally different — their value depends entirely on a future liquidity event.

RSU grants are refreshed over time at most large employers. Beyond your initial grant, many companies provide annual refresh grants that create overlapping vesting schedules, ensuring long-tenured employees always have meaningful unvested equity on the table.

Typical RSU Grant Sizes

RSU grant sizes vary enormously by company, level, and industry. At large public tech companies, a senior software engineer might receive a $200-400K RSU grant over 4 years. At a mid-stage startup, grants might be smaller but with higher upside potential. At traditional corporations, RSU grants for non-executive roles are often $10-50K over 4 years. The key number to evaluate isn't the grant size alone but the annualized value: a $200K grant over 4 years is worth $50K/year.

RSU Tax Planning: What to Know

  • Vesting is a taxable event — the value of vested shares is ordinary income in the year of vesting, taxed at your marginal rate.
  • Your employer typically withholds shares to cover taxes — but the default federal withholding rate (22%) may be lower than your actual marginal rate.
  • If you sell shares immediately at vesting, you'll owe little to no additional capital gains tax.
  • Large RSU vesting events in one year can push you into a higher bracket and trigger AMT in some cases.
  • Selling shares immediately after vesting vs. holding is a diversification decision as much as a tax decision.

RSUs at Private vs. Public Companies

At a public company, RSU value is knowable and liquid. At a private company, RSUs have no liquidity until the company goes public, is acquired, or provides a secondary liquidity event. Many early-stage startups use 'double trigger' RSU structures: shares don't vest until both a time condition AND a liquidity event occur. Before assigning value to private company RSUs, understand the company's valuation trajectory, funding stage, and realistic path to liquidity.

What Happens to RSUs When You Leave

  • Unvested RSUs are forfeited immediately upon departure — they return to the company's equity pool.
  • Vested RSUs at public companies are shares you already own — they're yours regardless of when you leave.
  • Unlike stock options, there is no 'exercise window' for RSUs at public companies — vested shares are simply in your brokerage account.
  • Before resigning, check whether any unvested grants are days or weeks away from their next vesting date — sometimes delaying a departure by two weeks is worth tens of thousands of dollars.

Example

You're granted 1,000 RSUs over 4 years with a 1-year cliff. At the cliff, 250 vest. If the stock is $50, you recognize $12,500 in ordinary income — and owe taxes on it even if you don't sell immediately.