Restricted Stock Units (RSUs)

Restricted Stock Units (RSUs) are a common form of equity compensation at public and late-stage private companies. Unlike options, RSUs don't require you to exercise — they simply convert to common shares at vest. The full fair-market value at vest is taxed as ordinary income.

Taxation at vest

When RSUs vest, the value (shares × stock price on the vest date) is treated as ordinary W-2 compensation. Your employer typically withholds a portion of the shares for taxes (often at a flat 22% federal supplemental rate, plus state and FICA). The remaining shares land in your brokerage account.

The vest-date price becomes your cost basis. Any subsequent gain or loss is capital gain/loss when you eventually sell.

The hidden risk: holding vested RSUs

A common founder/employee mistake is treating vested RSUs as "free money" that's tax-efficient to hold. In reality:

• You already paid ordinary income tax on the vest-day value
• Holding the shares now is identical, economically, to receiving cash at vest and choosing to buy your employer's stock
• Concentration risk in a single employer is rarely justified by tax considerations alone

Sell-to-cover vs hold + diversify

Most modern wealth planning advises selling vested RSUs immediately and reinvesting the proceeds in a diversified portfolio that matches your IPS. This eliminates concentration risk while the tax cost is minimal (you're realizing little to no additional gain right at vest).

Coordination with tax planning

RSU vests are a primary driver of unexpected tax bills. Coordinate with your CPA on:

• Estimated tax payments timed to vests (especially Q1 and Q4 vests)
• AMT exposure for very large vests
• Year-end gain budgeting if vests push you into a higher bracket
• Charitable giving with vested shares (donate appreciated low-basis shares to a Donor-Advised Fund)