Part of: Equity Compensation for Executives
RSUs vs. Stock Options: Key Differences
Restricted stock units (RSUs) and stock options are both common forms of equity compensation, but they work differently — including how and when they're taxed. This is a general overview; specific plan terms vary by employer.
How RSUs generally work
RSUs are typically a promise to deliver shares (or cash value) once vesting conditions are met. They generally have value even if the stock price doesn't move, and are typically taxed as ordinary income at vesting based on the value of the shares at that time. [ENTITY DISCLOSURE REQUIRED — confirm current tax treatment with a tax professional; this is not tax advice.]
How stock options generally work
Stock options give you the right to purchase shares at a set price (the strike or exercise price) within a certain window. They only have value if the stock price is above the strike price. Incentive stock options (ISOs) and non-qualified stock options (NSOs) have different tax treatment. In general, ISOs may qualify for capital-gains treatment if holding-period requirements are met, though they can trigger the alternative minimum tax, while NSOs are taxed as ordinary income on the spread at exercise.
Key takeaways
- RSUs generally have value regardless of stock price movement; options only have value above the strike price.
- Tax treatment differs by type and by timing of vesting or exercise.
- Specific plan terms vary by employer — always confirm your own plan documents.
More in this series
- Equity Compensation for Executives: Understanding Your Options
- Managing Concentration Risk in Company Stock