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An RSU turns into shares at settlement, usually at vest, with no purchase price.
A stock option is the right to buy shares at a strike price and has an exercise gain only above it.
Leaving the company or a sale of the company can forfeit, convert or accelerate unvested awards, depending on the plan terms.
Employees weighing an RSU vs stock options offer should compare vesting terms, exercise cash and the earliest sale date. Once delivered, RSU shares retain value while the stock is above zero; options pay only above their strike. Check how RSUs are taxed before signing.
Restricted stock units (RSUs) are an employer's promise to deliver company shares, or their cash value, once vesting conditions are met.
A CPA can model RSU vs stock options for a specific offer, using the grant terms and the household's tax year.
The company awards a number of units and sets the vesting schedule.
Service or performance conditions are met, and the units stop being forfeitable.
The plan delivers shares and may sell some to cover tax withholding.
The employee keeps the shares or sells them, like any other stock.
A four-year RSU vesting schedule
Example: 4,800 units, 25% at a one-year cliff, then 6.25% each quarter for 12 quarters
| Year 1 | Month 12 cliff |
|---|---|
| One vest of 25% | +1,200 units |
| 1,200 of 4,800 vested (25%) | |
| Year 2 | Months 15, 18, 21, 24 |
| Four vests of 6.25% | +1,200 units |
| 2,400 of 4,800 vested (50%) | |
| Year 3 | Months 27, 30, 33, 36 |
| Four vests of 6.25% | +1,200 units |
| 3,600 of 4,800 vested (75%) | |
| Year 4 | Months 39, 42, 45, 48 |
| Four vests of 6.25% | +1,200 units |
| 4,800 of 4,800 vested (100%) |
Illustrative schedule. Each quarterly vest is 300 units. The grant agreement sets the actual dates and amounts.
In a restricted stock units vs stock options comparison of 1,000 RSUs against 3,000 options at a $100 strike, pre-tax, the options are worth more only above $150 a share.
RSU vs stock options: value at five share prices
Illustration: 1,000 RSUs or 3,000 options with a $100 strike. Pre-tax value. Option value is the gain above the strike.
| Share price $70 | Options underwater |
|---|---|
| RSUs | $70,000 |
| Options | $0 |
| Share price $100 | At the strike |
| RSUs | $100,000 |
| Options | $0 |
| Share price $130 | RSUs ahead |
| RSUs | $130,000 |
| Options | $90,000 |
| Share price $150 | Break-even |
| RSUs | $150,000 |
| Options | $150,000 |
| Share price $180 | Options ahead |
| RSUs | $180,000 |
| Options | $240,000 |
1,000 RSUs · 3,000 options, $100 strike
Illustrative figures, not a forecast. Grant sizes vary by employer.
| RSUs | Stock options | |
|---|---|---|
| What vests | A right to shares, delivered at settlement | A right to buy shares at the strike price |
| Cost to the employee | None | The strike price, paid at exercise |
| If the price falls | Delivered shares keep their market value | No exercise gain below the strike |
| When taxed | As wages when shares are delivered | Nonqualified options at exercise; ISOs generally at sale |
| Deadline | None once shares are delivered | An expiration date and a post-employment exercise window |
Options at a private company may have no market until an IPO or sale, and double trigger RSUs wait for the same event.
Options pay only once the price rises above the strike, and beat an RSU grant of the same value only well above it.
Employees pay the strike unless the plan allows cashless exercise; nonqualified options add tax at exercise.
Option holders choose the exercise year within the plan's window. RSU holders receive shares on the plan's settlement dates instead.
Ask about the post-employment exercise window, acceleration on a sale and the settlement dates before signing.
To compare a mixed offer, value the RSUs at today's share price and the options at their spread above the strike at two or three higher prices. Include the strike and the price where the awards break even.
Incentive stock options have no regular tax at exercise, though AMT can apply, and an early sale can make some or all of the gain ordinary income. In an ISO vs RSU choice, the ISO adds upside and a cash cost; the RSU adds certainty.
Nonqualified options are taxed on the spread at exercise, whatever the holder does with the shares next. Choosing an NSO over an RSU gives up a free share for a bigger stake in any price rise.
A qualified ESPP can price shares at up to 15% below the lower of the offering-date or purchase-date value. With $50 at the offering date and $60 at purchase, the price can be as low as $42.50. Purchase rights accrue up to $25,000 of stock value a year, measured at the offering date. The RSU vs ESPP gap is cost: RSUs are free, while ESPP shares are bought.
Restricted stock is actual shares granted up front and subject to forfeiture. Unlike an RSU, it allows an 83(b) election, which taxes the grant value early.
An 83(b) election on restricted stock must be filed no later than 30 days after the shares are transferred. RSUs cannot use it.
Source: IRS Form 15620
Especially if you're earning equity from your employer and you have stock options you exercise, make sure to plan how much alternative minimum tax you're paying, because there's ways to reduce that strategically.
Unvested RSUs are generally forfeited on departure under the plan terms, while shares already delivered stay with the employee. Leaving before the first cliff usually means no shares, and some plans accelerate vesting at death or disability. Vested options must be exercised within the plan's window, and an ISO exercised more than 3 months after leaving is generally taxed as a nonqualified option.
The buyer and the company set the outcome in the merger agreement. The buyer can assume unvested RSUs, convert them into its own units, pay them out in cash or accelerate them. Under double trigger acceleration terms, the company can speed up vesting for employees let go after the deal.
Delivered shares are ordinary stock, and employees choose to sell, hold or split the difference. Our RSU tax help explains how each choice is taxed.
Employees who hold build exposure to one employer, on top of a salary that already depends on it.
At a public company, insiders must follow securities law and company trading policies, often using open windows. A Rule 10b5-1 plan, adopted before the holder knows material nonpublic information, can schedule sales in advance.
Private company RSUs can be double trigger awards. Employees can meet the service condition years before an IPO or sale completes vesting and delivers shares.
Until that event, the units cannot be sold, and their value comes from the company's own estimates. Options at the same company may also be hard to sell and can require cash to exercise.
When the event comes, several years of vesting can settle at once, so employees should plan that year before the deal closes.
I've worked with Dimov Tax Services for the past 3 years, and can vouch for their top-notch quality, professionalism, and timeliness. They're experts at handling all sorts of complex tax questions, from RSUs to interstate filing.
We quote the equity offer review before work starts, based on:
The lightest review is one RSU grant in one state. These are the factors, not a quote.
Clients who already hold equity can also use our individual tax preparation for the return.
Send the offer letter and grant terms, and a CPA models RSU vs stock options against the household's income and tax year before signing.
