5 Must-Know Facts About RSUs Before You Cash In

Restricted Stock Units (RSUs) have become super common and are being used by many companies.  Along with this added "bonus" comes some confusion. We are here to provide some must-know facts on RSUs.

If your company offered you RSUs as part of your compensation package, congrats—you’re being handed extra wealth...but wait, you are also subject to extra taxes. 

Here’s the deal: RSUs can be confusing, and if you don’t understand how they work, you could wind up with unexpected taxes or missed opportunities.

With today's market volatility, holding off to pay less taxes and kicking the can down the road may also mean getting less cash all together. 

There is a lot to consider. 

So before you hit that “sell” button or start planning your big post-vesting vacation, here are 5 key things you need to know about RSUs.

1. RSUs Are Not Actually Yours Until They Vest

RSUs are granted to employees, but not yours ...until they vest.

An RSU is a promise to give you company stock in the future—not a stock option, and not something you can sell or transfer right away.

They usually vest over time, based on your service to the company. A common vesting schedule looks like this:

• 4-year vesting with a 1-year cliff

• After 1 year: 25% vests

• Remaining 75% vests monthly or quarterly over the next 3 years

🔒 Until they vest, they have no real value—and if you leave before vesting, you lose them.

2. You’re Taxed the Moment RSUs Vest

This is the big one: RSUs are taxed as ordinary income when they vest.

Since you don't pay anything out of pocket for them, they serve as a form of compensation.  It's like a gift the government knows you were handed and slaps a tax bill on it.

On the vesting date, the fair market value of the shares you receive is added to your W-2 income. You’ll owe:

• Federal income tax

• State income tax (if applicable)

• Social Security & Medicare tax

⚠️ Even if you don’t sell the shares, you still owe tax based on their value at vesting. That’s why many companies automatically sell some shares or withhold shares to cover the taxes—called “sell to cover" or "withhold to cover".

NOTE: Most companies only withhold 22% to cover taxes and most of the time, the additional RSU income bumps you up a tax bracket or two and 22% withholding may not cut it.  

This is a great time to have a tax advisor to help you budget for the additional taxes you will owe and make an estimated tax payment.

3. You Could Owe More Taxes Later When You Sell

Once RSUs vest and are taxed as income, the value of the RSU at vesting is your "cost basis".  If the the price increases and you sell, the gain (proceeds - cost basis) is taxed as a capital gain. 

Likewise, if you sell and the price decreases, you could in turn have a capital loss.

RSUs follow the normal one-year holding rules when it comes to capital gains rates.

• If you sell within 1 year of vesting: Short-term capital gains (taxed at ordinary income rates)

• If you sell after 1 year: Long-term capital gains (typically lower rates)

💡 Tax planning tip: Consider holding vested RSUs for a year to reduce the capital gains tax rate—but only if you're comfortable with the investment risk...because the price could go down.

4. RSUs Have No Strike Price—You Pay Nothing

Unlike stock options (ISOs or NSOs), RSUs don’t have a strike price. You don’t have to pay anything to receive them. They are truly like a corporate gift that has value and only your time and effort is the price you pay.

That means:

• If the stock price rises, you win.

• If the stock price falls, your RSUs may be worth less, but you haven’t put any cash at risk.

👍 RSUs are simpler and less risky than stock options—but offer less upside potential.

5. You Need a Plan—Not Just a Payout

RSUs can be a great way to build wealth, but without a plan, they can also lead to:

• Surprise tax bills

• Poor investment decisions

• Missed opportunities to grow or protect your money

• Easily made mistakes on self-prepared tax returns that cause payment of double tax!

Ask yourself:

• Do I need to sell RSUs to cover taxes or other financial goals?

• Am I overexposed to my company’s stock?

• Should I reinvest RSU proceeds in a diversified portfolio?

• What are the tax implications of holding vs. selling?

• Do I understand how to record an accurate cost basis so I don't pay taxes twice, because your brokerage statement may say they have a ZERO cost basis, and unless there was a ZERO value when they were vested, this is not correct.

🚀 Tip: Coordinate both tax preparation and tax planning with your CPA or tax expert to optimize both taxes and keep more money in your pocket...or investment account. 

Bonus Tip: RSUs and AMT Don’t Mix

Good news—RSUs do not trigger the Alternative Minimum Tax (AMT). That’s a risk only with ISOs (Incentive Stock Options), not RSUs. It keeps your tax life a little simpler.

If you have ISOs, this is a good time to stop and reach out to a tax expert. You have a time bomb and may need to file an 83 b election within 30 days!

Final Thoughts: RSUs Are a Golden Opportunity—If You Use Them Right

RSUs can be a fantastic wealth-building tool—but they come with tax timing traps and investment risks if you’re not paying attention.

Understanding how RSUs are taxed, when they vest, and how they fit into your bigger financial picture is key to making smart decisions.

Quick Recap: 5 Things to Know About RSUs

1. They’re not yours until they vest

2. You’re taxed when they vest

3. You’ll owe capital gains tax if you sell later at a higher price

4. No strike price = no upfront cost

5. You need a financial + tax strategy

Have RSUs and not sure what to do with them? Let’s walk through your vesting schedule, tax exposure, and cash flow needs—so you can make the most of your equity without surprises.

Click here to download our "RSU Essentials" free ebook for more details or Book a call with a tax expert today.

You are not in this alone and we can walk you through your options and be proactive in your tax planning.