Restricted Stock Unit (RSU)
Also: RSU, restricted stock unit, RSUs
A company promise to deliver shares of stock on a future vesting date. RSUs are taxed as ordinary wage income at vest, based on the share price that day, not at the grant date.
An RSU is a contractual promise from an employer to deliver one share of company stock when a vesting condition is met. Until the shares vest, the employee owns nothing transferable. At vest, the full market value of the shares is added to wages on the W-2 and taxed at ordinary income rates plus payroll tax.
Example: a senior engineer vests 400 RSUs on a day the stock closes at $180. That creates $72,000 of ordinary wage income. The employer typically withholds shares to cover tax, often at the 22% federal supplemental rate, which undershoots the actual marginal bracket for most tech employees in high-cost states.
Common mistake: assuming the default 22% federal withholding covers the tax bill. A senior IC in California earning $400,000 sits in a 32% or 35% federal bracket, which produces a shortfall at filing. Quarterly estimated payments or a W-4 adjustment close the gap.
RSUs matter most when planning a vest schedule across a year, coordinating sell-to-cover against diversification goals, and timing a move between states. Post-IPO, vested RSUs are just stock: the decision to hold or sell is a concentration and tax question, not an equity-comp question.