What Is an RSU? A Complete Guide to Restricted Stock Units
9/3/2026
What is an RSU? A restricted stock unit, or RSU, is your employer's commitment to give you company shares once you meet a vesting requirement, typically staying employed for a set period of time. Unlike stock you already own, an RSU carries no purchase price and no shares until it vests.
This guide covers how RSUs work, how RSUs are taxed, and what RSU income actually means once the shares land in your account. You will also see why a growing pile of vested RSUs can quietly become a bigger risk than it looks.
What Is an RSU? Restricted Stock Units in Plain English
A restricted stock unit is a placeholder for a share of company stock, not the share itself. You cannot sell it, vote it, or collect a dividend on it until it vests. Once it vests, it converts into a real share sitting in your brokerage account.
RSUs differ from stock options, even though both are forms of equity compensation, meaning pay a company grants in company stock rather than only cash. A stock option only carries value if the stock price rises above the price you would pay to exercise it. An RSU carries value as long as the company's stock has any value at all, since there is no purchase price attached to it.
How Do RSUs Work, From Grant to Vesting?
RSUs move through three stages, and knowing which stage you are in tells you what to do next:
Grant: Your employer awards you a set number of units and sets the vesting schedule. No money changes hands at this point, and no tax is due yet.
Vesting: You earn the units over time by staying employed, often with an initial waiting period before any shares vest, followed by regular vesting dates after that.
Settlement: Each batch of vested units converts into real shares deposited in your brokerage account, ready to hold or sell.
How Are RSUs Taxed at Vesting?
RSUs are taxed as ordinary income the moment they vest, not when they are granted. The taxable amount equals the stock's fair market value, meaning the closing price on the vesting date, multiplied by the number of shares that vested.
There is no tax bill at grant and none while the units sit unvested. The IRS treats the value as income only once the shares actually vest and land in your account, the same way it would treat a cash bonus.
What Is RSU Income?
RSU income shows up on your W-2, the annual wage form your employer sends you and the IRS, folded into your regular wages with no separate line item calling it out. If your company vests shares four times a year, each vesting event adds its own chunk of taxable income.
Key RSU Tax Points to Watch
Four things about RSU taxation catch most executives off guard:
The Withholding Gap: Your employer withholds federal tax on RSU income at a flat 22% on amounts up to $1 million in supplemental wages, the IRS category covering bonuses, commissions, and equity income paid outside your regular salary, and 37% on anything above that. If your marginal tax rate runs higher than 22%, the withholding will not cover your full tax bill.
Sell to Cover Is Not Always Enough: Many employers sell part of your newly vested shares automatically to cover the withholding, an arrangement called sell to cover. That flat-rate sale is often still short of what you actually owe if you are in a higher tax bracket.
Your Holding Period Resets at Vesting: The price on your vesting date becomes your cost basis, the number the IRS uses to measure any future gain or loss. Hold the shares more than one year past vesting and any additional gain qualifies for long-term capital gains rates instead of your ordinary income rate.
High Earners May Also Owe the NIIT: The net investment income tax adds a 3.8% surtax on investment income for single filers over $200,000 and married couples filing jointly over $250,000. This applies to the capital gain on your shares, not the ordinary income taxed at vesting.
When Vested RSUs Become a Concentration Risk
I worked with GoalVest client Sophie when her net worth had become concentrated in her employer's stock, built up through years of RSU grants she let accumulate without a plan. She understood the risk in the abstract. She just had no framework for reducing it without triggering a large tax bill all at once.
Here is a question I ask clients in this position: would you use today's cash to buy more of your company's stock? If the answer is no, holding on to vested RSUs is the same decision in disguise.
You have already paid ordinary income tax on those shares the day they vested. What you are holding now is a plain investment decision, not a leftover piece of your paycheck.
GoalVest Advisory built Sophie a multi-year plan through our concentrated stock management service that sold shares on a set schedule, spread the resulting capital gains across several tax years, and steadily reduced her single-stock exposure without one abrupt sale.
What This Means for Your Next Vesting Date
An RSU is the simplest form of equity compensation, shares you earn over time with no purchase required. The tax bill arrives at vesting, taxed as ordinary income, not before and not after.
Two things catch most executives off guard: the withholding gap from the flat 22% rate, and the slow, unplanned buildup of company stock that follows every vesting date. Not every vested position needs an immediate plan: if your company stock is still a small slice of a larger portfolio, holding steady for now can be the reasonable choice.
If it has become your largest asset instead, it is worth building a plan before your next vesting date. We are a fee-only fiduciary firm, legally required to act in your interest.
You can schedule a conversation about your RSU strategy directly on my calendar.
For more on managing equity compensation as it builds up over your career, visit our Insights hub.
About the Author: Sevasti Balafas, CFA, is the founder and CEO of GoalVest Advisory and has more than 20 years of experience in wealth management, including managing more than $4 billion in client assets at a global investment bank. She is a recurring guest on Fox Business News and has been a prior contributor to CNBC's Worldwide Exchange, Kiplinger Personal Finance and Barron's.
GoalVest Advisory is an SEC-registered investment adviser. Information presented in this article is for educational purposes only and does not constitute personalized investment, tax, or legal advice. Past performance does not guarantee future results. Please consult a qualified financial professional before making investment decisions.
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