Restricted Stock vs Restricted Stock Units: What Changes for Tax, Ownership and the 83(b)

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Restricted stock (a restricted stock award, or RSA) gives you actual shares on the grant date that you can lose if you leave before they vest. A restricted stock unit (RSU) is only a promise to deliver shares later, so you own nothing until the units vest and settle. That one difference drives everything else: only restricted stock allows an 83(b) election to be taxed at grant, only restricted stock can carry voting rights and real dividends before vesting, and RSUs are always taxed as wages when the shares are delivered.

For most W-2 families at Apple, Amazon, Genentech or Gilead, the grant is RSUs and there is no choice to make. The question becomes real when one spouse joins an early-stage company, or is promoted into an executive role, and the offer letter says “restricted stock”. At that point a 30-day deadline and a five- or six-figure tax bet arrive at the same time.

Restricted stock vs RSUs at a glance

Why the 83(b) election only works for restricted stock

Section 83 of the tax code taxes “property” you receive for services. Restricted stock is property the day it is issued to you, even though you can lose it. The 83(b) election lets you choose to be taxed on its value at grant, minus anything you paid, instead of waiting for each vesting date. IRS Publication 525 says the statement (or Form 15620) must be filed no later than 30 days after the property is transferred, and that it cannot be revoked without IRS consent (IRS Pub 525, Restricted Property).

An RSU is not property until the shares are delivered. Treasury regulations treat an unfunded, unsecured promise to pay in the future as outside Section 83 (Treas. Reg. §1.83-3(e)), so there is nothing to elect on. Older articles that tell you to “file an 83(b) for your RSUs” are wrong. For RSUs, the tax event is vest and delivery, every time.

How each one is taxed for a California or Washington W-2 family in 2026

RSUs

The fair market value of the shares on the delivery date is wages on your W-2. For 2026 your employer withholds federal tax at the optional 22% supplemental rate (or uses the aggregate method), and must withhold 37% on supplemental wages above $1,000,000 in the calendar year (IRS Pub 15, 2026). Medicare tax of 1.45% applies with no cap, plus the 0.9% Additional Medicare Tax once married-filing-jointly wages pass $250,000. In California, the vest is also subject to state income tax and 1.3% SDI on all wages for 2026. In Washington, there is no state income tax on the vest in 2026.

The gap between withholding and the real rate is where most RSU households get surprised. Say a $1.6M household in Seattle or the Bay Area has 2,000 RSUs vest at $150, or $300,000 of income, and that household is already in the 37% federal bracket (which starts at $768,700 of 2026 joint taxable income). Federal tax on that vest is about $111,000. At 22% withholding the employer sends $66,000, leaving roughly $45,000 to cover through estimated payments or extra withholding. Our guide to withhold-to-cover vs sell-to-cover walks through how shares are sold to fund that.

Restricted stock without an 83(b) election

Each tranche is taxed as wages on its value when it vests, the same way an RSU is. Any dividends paid before vesting are also wages, reported on your W-2, not dividend income (Pub 525).

Restricted stock with an 83(b) election

You report the grant-date value minus what you paid as wages in the year of the grant. Later growth is not wages. When you sell, the gain above that value is a capital gain, long-term if held more than a year from the grant. Dividends after the election are treated like any other dividends and reported on Form 1099-DIV, not as wages (Pub 525).

For a California resident, that conversion is worth less than it looks, because California taxes capital gains as ordinary income with no lower rate (FTB). The federal savings is the main prize. For a Washington resident it cuts the other way at the state level: the vest is free of state income tax in 2026, but long-term gains on stock can fall under Washington’s 7% capital gains tax (9.9% on taxable gains above $1,000,000) once they exceed the annual standard deduction, which was $278,000 for 2025 (WA DOR). Washington has also enacted a 9.9% income tax on AGI above $1,000,000 starting in 2028 (WA DOR), which matters for grants that vest after 2027.

Worked example: a $1.6M Bay Area household weighs an 83(b)

Assumptions (all illustrative): one spouse leaves a large tech company for a private Series B startup. Household W-2 income stays around $1.6M, so the family is in the top federal and California brackets. The offer is 100,000 shares of restricted stock worth $1.00 a share at grant, at no cost, vesting 25% a year for four years. The family sells all shares at $10 more than a year after the final vest. The combined marginal rate on extra wages is 53.95% (37% federal, 12.3% plus the 1% Behavioral Health Services Tax in California, 1.45% Medicare, 0.9% Additional Medicare, 1.3% SDI; Social Security is already capped). The rate on long-term gains is 37.1% (20% federal, 3.8% net investment income tax, 13.3% California). California rates use the latest published (2025) schedules.

If the company succeeds, the election saves about $67,400. Now the other branch. If the spouse leaves after ten months and forfeits every share, Pub 525 limits the loss to what was paid for the shares, which here is zero. The $53,950 of tax is gone. If the company simply stalls and the shares are worth less than $1.00 at a later sale, the family prepaid tax on value that never showed up, and recovers it only as a capital loss.

Two variations change the math sharply. If the startup lets you buy the shares at their full fair market value, the 83(b) income is zero, so the election costs nothing and is usually filed. If the restricted stock is from a public company, there is rarely a gap between today’s price and what you expect, so prepaying tax at grant is mostly a bet on the stock, and many executives skip it.

The decision your family actually has to make

With RSUs, the decision is not about the grant. It is what to do with the shares after each vest: hold, sell, or sell enough to cover the tax, and how much of your net worth you let sit in one employer. See how RSU income is calculated and our investment risk management work on concentrated stock.

With restricted stock, the decision is the 83(b), and it has to be made in 30 days. A short checklist:

1. What is the taxable spread today (grant-date value minus what you pay)? If it is near zero, the election is cheap.
2. How likely is it that you stay through vesting? The forfeiture risk is personal, not just about the company.
3. Can the family pay the 83(b) tax from cash without selling other assets or touching the children’s 529 plans?
4. Are you in California, Washington, or moving between them before the shares vest or sell? State rules differ at each step.
5. Who will mail the election, keep the certified-mail receipt, and send copies to the company?

If you are at a private company with RSUs instead, the timing questions are different; see RSUs at private companies. For the filing itself, see how to draft a Section 83(b) election letter.

Common mistakes with restricted stock and RSUs

• Assuming an RSU grant allows an 83(b). It does not.
• Missing the 30-day window on restricted stock. Pub 525 describes no extension.
• Treating 22% withholding as the tax owed on RSUs. At a 37% federal bracket it usually leaves a balance due.
• Filing 83(b) on a large spread without planning for the case where you leave early and forfeit.
• Forgetting that pre-vest dividends on restricted stock are wages unless you made the election.

What to write down for your kids

An 83(b) election is a clean example of a decision under uncertainty: you pay a known cost now for a possible gain later. Write one page on what you knew at the time, what you chose, and why, then revisit it when the shares vest or the company exits. Whether the bet paid off matters less than whether your children can follow the reasoning. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” Our family governance work is built around records like this.

Frequently asked questions

Can I file an 83(b) election on RSUs?

No. An RSU is an unfunded promise to deliver shares later, and Treasury regulations treat that as outside Section 83 until shares are delivered. The 83(b) election applies to restricted stock, including unvested shares you receive by exercising stock options early. Pub 525 notes it cannot be made on the option itself. RSUs are taxed as wages when they vest and settle, and the employer withholds at that time.

What is the difference between restricted stock and control stock?

These are securities-law terms, not tax terms. The SEC defines restricted securities as shares acquired in unregistered, private sales from the company or an affiliate, and control securities as shares held by an affiliate, such as an executive officer, director or major shareholder (SEC, Rule 144). Both can face resale limits under Rule 144, separate from any vesting schedule.

Is restricted stock better than RSUs?

Neither is better in the abstract. Restricted stock offers the 83(b) option and earlier capital gains treatment, which helps most when the grant-date value is low and the company grows. RSUs carry no prepaid-tax risk and suit large public companies with liquid shares. The right handling depends on your price, your odds of vesting and your state.

Next step: if a restricted stock offer is on the table, put the grant agreement, the grant-date value and the vesting schedule in one place before day 30, and run both columns of the table above with your own numbers. Our tax management team can model it as part of a Tax & Wealth Assessment.

This article is general education. The right move depends on your family’s full tax and financial picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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