What is an RSU?
A Restricted Stock Unit (RSU) is a promise from your company to give you shares of company stock in the future—if you meet certain conditions. Think of it as an "IOU" for company shares.
How RSUs Work
You Receive an RSU Grant
Your company promises you a certain number of shares. For example: "We're granting you 1,000 RSUs."
Vesting (Earning Your Shares)
You have to meet certain vesting conditions before you actually get the shares. Common conditions include:
Time-based vesting: Stay at the company for a certain period
Example: 25% of your RSUs vest each year for 4 years
Milestone-based vesting: Company hits certain goals
Example: Company goes public or gets acquired
Double-trigger vesting: Both time AND milestone must happen
Example: You work for 2 years AND company goes public
Settlement (Getting Your Shares)
Once your RSUs vest, they convert into actual company shares (typically common shares). This is called "settlement."
At public companies, vesting and settlement usually happen at the same time. At private companies, it's more complicated—double-trigger RSUs only settle when the company has a big triggering event (like an IPO), while single-trigger RSUs typically settle on a regular cadence (e.g. monthly, quarterly, annually, etc.) as determined by the company administrator.
Types of RSUs
Single-Trigger RSUs
Only one vesting condition to meet (usually time-based)
Once you've worked long enough, you get your shares
Double-Trigger RSUs
Two vesting conditions must be met
Example: Work for 2 years AND a company triggering event (IPO, acquisition, etc.)
RSU Taxes Made Simple
When Do You Pay Taxes?
You pay taxes when your RSUs settle (when you actually receive the shares) based on the value of the company's stock on the settlement date. Your company is required to withhold taxes from your settlement, just like they do with your regular paycheck.
How Much Tax?
RSUs are taxed as regular income (like your salary)
Employers are required to withhold 22% for federal income taxes on the first $1 million in supplemental income for employees, and 37% of any amount exceeding $1 million
You'll also owe state income taxes and Social Security/Medicare taxes as well
You might owe more taxes when you file your taxes if the company under-withheld
Tax Withholding
Companies handle taxes due upon a settlement in a few ways:
Share withholding (most common):
Company withholds some of your RSUs to cover the tax amount
You receive fewer shares post-settlement, but the company pays your taxes on your behalf
Cash payment:
You pay the company cash to cover the tax obligation
You keep all your shares post-settlement
Requires you to have cash available
What Happens If You Leave the Company?
Vested RSUs
You typically keep shares that have already vested
If they haven't settled yet, you'll still get them when settlement happens
Unvested RSUs
You usually lose RSUs that haven't vested yet
Exception: Some companies accelerate vesting when you're laid off
Special Cases
Double-trigger RSUs: You might lose everything if you leave before the triggering event (like IPO)
"Must be present to win": Some companies require you to still work there when the big event happens
RSUs can be valuable, but understanding how they work and planning for taxes is important to get the most benefit from your equity compensation.