If equity shows up in your offer letter, that’s a vote of confidence—and a chance to build real wealth. But RSAs (Restricted Stock Awards) and RSUs (Restricted Stock Units) behave very differently once you look under the hood. Ownership timing, tax timing, liquidity, and company policies all shape your outcome. This guide translates the jargon into plain English so you can make smart, confident decisions.
Table of Contents
What RSAs and RSUs Are (in simple terms)
An RSA gives you actual shares now—on the grant date—subject to a vesting schedule and forfeiture if you leave early. Because you own shares at grant, an RSA can qualify for an 83(b) tax election.
An RSU is a promise of future shares (or sometimes cash). You don’t own stock until each vesting date arrives, so RSUs do not qualify for 83(b). The value is taxed as ordinary income when the units vest.
Side‑by‑side at a glance
| Feature | RSA | RSU |
|---|---|---|
| When do you receive shares? | At grant (restricted; subject to vesting/forfeiture) | At vest (shares delivered when units vest) |
| Eligible for 83(b)? | Yes (30‑day IRS deadline; irrevocable) | No |
| When is ordinary income recognized? | At grant if 83(b) filed; otherwise at each vest | At each vest |
| Typical issuer | Startups/private firms | Public companies |
| Liquidity expectation | Often illiquid until tender/IPO (private) | Tradable after vest if public and outside blackout |
Why this matters: The same number of “shares” can lead to very different tax bills and cash‑flow results depending on whether you’re holding an RSA or an RSU.
How and When Shares (or Cash) Actually Arrive
With an RSA, shares are issued on day one, then restrictions fall away as you vest. In a private company, “vested” does not automatically mean “liquid.” Transfer restrictions, company repurchase rights, or a lack of a secondary market can keep you from selling until a tender offer or IPO. In a public company, shares are tradable after vesting, subject to insider-trading policies and blackout windows.
With an RSU, you receive nothing until vesting. On each vest date, the company settles the units—typically by delivering shares into your brokerage account (or cash if the plan is cash-settled). If the company is public, you can generally sell after settlement and outside blackout windows. If the company is private, the units may convert to shares you still cannot sell.
Set Yourself Up
Open the required brokerage account, confirm where shares will settle, and learn the company’s trading/blackout policy before your first vest.
Taxes 101: When Income Shows Up and at What Rate
Equity is taxed in two layers: ordinary income first, capital gains later.
Ordinary Income
For RSUs, the fair market value (FMV) of shares at each vest appears on your W-2. For RSAs, the W-2 income appears at each vest unless you file an 83(b), in which case ordinary income is recognized at grant based on the then-current value. Payroll taxes usually apply at vest: Social Security up to the annual wage base, Medicare with no cap, and for high earners the 0.9% Additional Medicare tax. State income taxes follow your residence rules (and sometimes where the award was earned).
Capital Gains
After you own the shares, any subsequent price change is capital gain or loss. Hold more than one year for long-term rates; sell sooner and you’ll incur short-term gains taxed like wages. If you file an 83(b) on an RSA, your long-term holding period starts at the grant date—a subtle but powerful advantage when it works in your favor.
Withholding Reality Check
Many companies withhold federal tax on RSU income at the supplemental wage rate (e.g., 22% federally), which can be lower than your actual marginal rate. That gap is a common reason people owe more at tax time unless they make estimated payments or increase withholding.
The 83(b) Election (RSA Only): Powerful—But Only in the Right Conditions
The 83(b) election applies only if you own shares at grant (RSAs, not RSUs). You elect to recognize ordinary income now on the current FMV, rather than later at vest. If today’s value is tiny and you expect strong growth, this can flip a large future wage tax into lower capital-gains tax.
Why People File
They lock in a small ordinary-income number at grant.
The long-term capital-gains clock starts immediately.
Future appreciation (after grant) is taxed at capital-gains rates, not as wages.
Why People Pass
You prepay tax. If you forfeit unvested shares (leaving early) or the stock falls, the IRS does not refund the tax.
You must file within 30 days of the grant; there are no extensions and the decision is irrevocable.
If valuation is already high or outcomes are uncertain, the risk often outweighs the benefit.
Numeric Example
Grant: 100,000 RSA shares at $0.10 FMV → $10,000 of ordinary income today if you file 83(b).
Future Vest & Sale: Suppose the price at sale is $5.00. Roughly $490,000 would be capital gains (long-term if held > 1 year), not wages.
But If Things Go the Other Way: If you forfeit half the shares or the price sinks to $0.02, you paid ordinary tax upfront on value you never realize—and there’s no refund.
Action Step
Ask the company how FMV is determined, estimate the tax, and talk to a tax pro immediately. If you decide to file, send the letter to the IRS by certified mail within 30 days and keep proof of mailing.
Withholding and Cash-Flow at Vest: How the Bill Gets Paid
On RSU vesting (and RSA vesting without 83(b)), companies must withhold taxes. You typically have three choices:
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Sell-to-Cover: A broker sells enough shares to satisfy withholding; you receive the remaining shares.
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Net Share Withholding: The company withholds some shares and delivers the balance to you.
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Cash Pay-In: You pay withholding in cash and keep all vested shares (requires planning and liquidity).
Numeric Example
Vest: 2,000 RSUs at $50 → $100,000 of W-2 income.
Withholding: If the company withholds at 22% federal but your marginal rate is 35%, you could owe several thousand more in April unless you make estimated payments or increase withholding.
Practical Tip
Check the default method in your equity portal and the deadline to change it—often a few days before vest.
Vesting Mechanics That Shape Your Timeline
Time-based vesting often uses a one-year cliff followed by monthly or quarterly tranches over three to five years. Performance-based awards add milestones (revenue, product, or stock-price targets) that must be met for vesting to occur.
Plan Ahead
Put every vest date on your calendar with reminders 30–60 days in advance. Learn the company’s blackout periods and pre-clearance rules. If you’ll need to sell, consider a Rule 10b5-1 plan—a pre-scheduled trading program that helps you diversify without guessing at timing or risking insider-trading issues.
Change in Control, Termination, and Other What-Ifs
What happens if the company is sold or your role changes? Read these clauses closely:
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Single-Trigger Acceleration: Unvested shares vest at the deal’s close.
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Double-Trigger Acceleration: You need two events—(1) a change in control and (2) a qualifying termination (e.g., laid off without cause)—to accelerate vesting.
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Repurchase Rights (Private RSAs): The company may buy back shares—sometimes at the lower of your cost or FMV—after certain separations.
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Clawbacks (Public RSUs): Companies may recoup vested shares or proceeds for misconduct or financial restatements.
A Timing Story
If a sale is rumored and you’re considering a move, the difference between single- and double-trigger acceleration can be worth six figures. Do not assume. Confirm your plan’s terms in writing before you resign or accept a new role.
Private vs. Public Company Mechanics (The Realities Behind the Scenes)
Private Companies
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409A Valuation: Private FMV is set by periodic 409A appraisals, not daily markets. Sharply rising or falling valuations can change tax math between grants and vests.
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Transfer Restrictions: Even vested shares may be subject to right-of-first-refusal, lockups, or other limits.
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Liquidity: Tenders or secondary sales may be offered occasionally and only to certain holders. Each event has windows, rules, and tax paperwork.
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Repurchase at Cost: Some plans allow the company to buy back shares at your original purchase price after separation.
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83(i) Deferral (Rare): A niche provision can let some employees defer tax for up to 5 years on qualified stock grants, but the company must opt in, many employees are excluded (e.g., 1% owners, certain officers), and strict conditions apply.
Public Companies
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Trading Discipline: Blackout windows, pre-clearance, and insider-trading rules govern when you can sell.
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Predictable Settlement: RSUs settle to shares on vest (unless cash-settled), and you can plan liquidity more reliably.
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Concentration Risk: Big vests can leave you overexposed to one stock. A paced, rules-based 10b5-1 plan can help you trim exposure while staying compliant.
Portfolio Risk: Don’t Let One Stock Dominate the Show
Employer stock can quietly grow to an outsized share of your portfolio—especially after a strong year or a big vest. Set a target range (for many investors, 10–15% of investable assets) and a step-down plan (e.g., reduce exposure 2–3% per quarter) to keep risk in check. Use a 10b5-1 plan to execute automatically within company policy.
Life Events & Coordination: The Ripple Effects You Can Plan For
Equity doesn’t live in a vacuum. Moving states can change how your RSU income is sourced and taxed. Marriage or divorce can affect ownership and, in some cases, how awards are divided (e.g., via QDROs or marital-property rules—consult counsel). Update beneficiaries on your brokerage accounts and review your estate plan. Also remember: large vest years can affect Medicare IRMAA two years later, nudging Part B and Part D premiums higher. A multiyear projection helps you stay ahead of these ripple effects.
Common Mistakes to Avoid
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Missing the 30-Day 83(b) Window for RSAs.
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Assuming RSUs Qualify for 83(b) (they don’t).
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Under-Withholding and getting an April tax surprise.
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Ignoring Blackout Windows and pre-clearance rules.
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Letting Concentration Creep push employer stock beyond your target range.
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Skipping the Fine Print on clawbacks, repurchase rights, and acceleration terms.
A Simple Decision Framework
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Confirm the Grant Type. RSA or RSU? That single fact drives tax timing and planning.
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Map the Vesting Schedule. Put cliffs, tranches, and performance gates on your calendar.
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Choose Tax & Cash-Flow Strategies. For RSAs with low FMV, evaluate 83(b) with a tax pro; for RSUs, pick a withholding method and estimate taxes.
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Plan Liquidity & Diversification. Set a target allocation to employer stock and consider a Rule 10b5-1 plan for orderly selling.
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Check What-Ifs. Read change-in-control and separation terms before major career moves.
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Keep Records. Save grant docs, 83(b) proof (if filed), confirmations, and tax forms in one place.
Quick FAQ
Can I file an 83(b) on RSUs?
No. RSUs don’t create share ownership until vesting, so there’s nothing to elect at grant.
What if I miss the 30-day 83(b) deadline?
The election is lost. You’ll be taxed at vest, and the IRS doesn’t grant extensions.
Do all RSUs settle in shares?
Not always. Some plans settle in cash. Your grant agreement specifies the form of settlement.
Will I owe FICA on RSU income?
Yes. Social Security applies up to the annual wage base; Medicare applies with no cap, plus the 0.9% Additional Medicare tax for high earners.
How can I diversify without timing the market?
Adopt a Rule 10b5-1 plan that schedules periodic sales within policy so trades execute automatically.
Does moving states change how my RSUs are taxed?
It can. States may claim tax on compensation earned while you lived or worked there. Cross-state issues are complex—speak with a tax professional.
What happens to unvested awards if I’m laid off?
Most plans forfeit unvested RSUs at separation. Some provide acceleration on layoff or in a sale (single- or double-trigger). Read your plan to know your protections.
Checklist You Can Print
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Confirm RSA vs. RSU and 83(b) eligibility (RSA only).
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Read grant & plan documents (vesting, clawbacks, acceleration).
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Calendar cliffs, vest dates, blackout windows, and pre-clearance needs.
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Choose a withholding method and run a quick tax projection.
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Set diversification targets and consider a 10b5-1 plan.
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Update beneficiaries; review estate and multiyear tax plan.
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Save documents and confirmations (and 83(b) proof, if filed).
In Conclusion: Harness the Full Power of Your Equity Compensation
Equity can be an engine—not a headache—once you understand how RSAs and RSUs really work. Confirm what you have, map the key dates, decide on tax and liquidity strategies, and keep your portfolio risk in line. If you prefer a guide, work with a fee-only fiduciary planner and a CPA who understand equity compensation.
Ready for a quick equity checkup? Schedule a call or send a note—let’s turn your grant into a plan. chip@addishill.com
