Key takeaways

• RSUs are generally taxed as ordinary wage income at vesting; later gains or losses are capital in nature
• Withholding at vest may not match the final tax bill, so a reserve or scheduled sales can prevent year-end surprises
• Concentration in employer stock increases risk; set and follow a diversification policy
• Trading windows and liquidity limits (especially at private firms) call for advance planning

A restricted stock unit (RSU) converts part of compensation into company shares (or cash) on a schedule. Value is set at vesting and is generally taxed as wage income then; later price changes are capital gains or losses when sold. Clear rules for selling, diversification, and recordkeeping can turn periodic vests into steady financial progress.

A restricted stock unit (RSU) is a type of equity compensation where the company may deliver corporate shares or the cash equivalent to an employee in the future, typically tied to their tenure or performance. Until vesting, there is no actual stock owned and no voting rights. Some plans pay dividend equivalents along the way; when offered, those cash credits are typically taxed as ordinary income when paid.

Some companies offer RSUs as an incentive to attract and retain talent. Recent Empower research on workplace benefits finds that employees who use financial benefits such as financial education, budgeting tools, debt support, and retirement planning are more likely to say those programs improve productivity and engagement (72%) and influence their decision to stay (71%). 

Read more: Restricted stock units vs. stock options: What’s the difference?

How do RSUs work?

RSUs typically are granted to employees as part of their compensation package. Because they are generally considered a “promise” that’s earned over time, they typically come with a vesting schedule that determines when an employee gains ownership of the stock. Here are a few considerations:

• Grant date vs. vesting date. The grant spells out the number of units and the schedule. The vesting date is when the company converts those units into shares or cash at fair market value.
• Typical vesting schedules. A four-year schedule with a one-year “cliff,” then monthly or quarterly vests, is common. For example, 25% may vest after year one, with the rest vesting in equal monthly or quarterly installments. Some plans use instead follow straight-line vesting.
• How value is determined. For stock-settled awards, where employees receive actual stock, the value equals share price at vesting multiplied by the number of units vesting. Cash-settled RSUs pay the cash equivalent.

Example. A grant of 1,000 RSUs on a four-year schedule might vest 250 units each year. If the share price is $40 at the first vest, the taxable value for that year is $10,000.

Read more: Compare stock-based compensation types

How RSUs vest and settle

Time vs. performance. Many plans use service-based schedules (e.g., four years with a one-year cliff, then monthly or quarterly vests). Others tie vesting to goals such as revenue, profitability, or relative total shareholder return. 

Cliff vs. graded. A cliff delays the first release; graded vesting spreads smaller releases over time. After vesting, awards settle as shares or cash per plan rules; trading windows, insider policies, and any holding requirements still apply. 

Second condition within private companies. Many private firms add a second condition (e.g., an IPO or liquidity event) so units vest on time but don’t settle until liquidity is available. That structure can help with insider policies and limited trading access while the company is private.

Job changes and other separations. Unvested units are generally forfeited when employment ends. Some plans include special treatment for retirement eligibility, disability, layoff, or death; outcomes depend on award agreements. In mergers or acquisitions, unvested RSUs may be accelerated, assumed by the acquirer, cashed out, or canceled — again per plan terms.

Read more: From 401(k) to ESOP: Why equity compensation matters more than ever

Taxes: timing, rates, and practical planning

When taxes hit. For stock-settled and cash-settled RSUs alike, the fair market value at vesting is typically treated as ordinary wage income and subject to federal, state, and payroll taxes. Future price changes after vesting become capital gains or losses when shares are sold. 

Withholding mechanics. Employers usually handle taxes via share-withholding (“sell to cover”) or payroll withholding at supplemental wage rates. Default withholding may not match an individual’s final tax liability, especially in high-tax jurisdictions or with multiple vests, so setting aside a reserve, making estimated payments, or selling additional shares can help avoid year-end surprises. 

Holding periods. For capital gains purposes, the holding period begins the day after vesting; long-term treatment generally requires holding shares more than one year after vesting.

Multi-state or global considerations. RSU income may be sourced to multiple jurisdictions based on where service was performed during the vesting period; company tax reporting and personal returns should reflect the applicable rules. 

Read more: Equity compensation: An employee guide  

Financial planning with RSUs

Empower research shows Americans say they think they will need about $1.06 million to retire, a reminder that periodic RSU vests can play a practical role in long-term planning.

RSUs are part of total compensation, not a windfall. Building an equity policy makes decisions easier during busy vesting periods: Set a target allocation to company stock, define triggers for trimming concentration, and designate what portion of every vest covers taxes, what is reinvested, and what funds goals (debt reduction, emergency savings, or larger milestones). Pre-arranged selling approaches (e.g., using scheduled trading windows permitted by policy) can reduce second-guessing. Track blackout dates, and for private firms, plan for tender offers or other limited-window liquidity events when available. Keep confirmations and tax forms organized for annual filing.

During benefits season, cost often steers choices — Empower’s open enrollment research finds 53% pick benefits by price — so building a simple, rules-based plan for equity can reduce second-guessing when markets move.

A steady, rules-based approach — covering taxes, trimming concentration, and redirecting proceeds toward long-term goals — can turn gradual or incremental vests into ongoing financial progress. 

Read more: Tender offers let employees cash in — without an IPO

How do RSUs differ from stock options or ESPPs?

• RSUs deliver value once vested and settled. Options deliver value only if the market price exceeds the grant’s exercise price.
• Settlement: RSUs convert into shares (or cash) at vesting based on fair market value. Options require an exercise decision and cash (or a cashless exercise) to acquire shares.
• Tax timing: RSU value at vest is usually ordinary income; later changes are capital gains or losses. Options generally create taxable income at exercise for non‑qualified options (NSOs) and may have different rules for ISOs.
• Employee stock purchase plans (ESPPs) allow employees to purchase shares — often at a discount — and may include a lookback feature. That discount and lookback can create additional upside potential, while RSUs can provide more predictable value at vest.

A checklist before the next vest

• Confirm the number of units scheduled to vest and the settlement method
• Note blackout dates and the first trading day after vesting
• Estimate wage income and expected withholding by jurisdiction
• Decide how many shares to sell for taxes versus diversification
• Review the target allocation and place post-vest rebalancing trades
• If holding shares for long-term treatment, set a reminder for the one-year mark
• Revisit charitable plans for appreciated positions
• Archive award documents, confirmations, and tax forms

FAQ

Does 1 RSU equal 1 stock?

Typically, yes — one unit converts to one share when stock-settled, unless plan terms specify otherwise. 

Can RSUs be sold immediately after they vest?

Once settled, shares can usually be sold, subject to company trading policies, blackout windows, and any shares withheld for taxes. 

What happens to RSUs if someone leaves the company?

Unvested units are generally forfeited. Specific outcomes depend on the award agreement and plan. 

Are RSUs considered income?

Yes. At vesting, fair market value is typically ordinary income; later price changes are capital gains or losses.