Restricted Stock vs RSUs: The Difference, Taxes and the 83(b) Decision

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

The difference between restricted stock and restricted stock units (RSUs) is when you own the shares. With restricted stock, real shares are issued to you on the grant date, but you can lose them if you leave before they vest. With RSUs, you own nothing on the grant date; the company has only promised to deliver shares (or cash) later, so the shares and the tax arrive together at vest.

That one difference drives everything else: whether you can file an 83(b) election, whether you receive dividends and votes, when the tax bill lands, and how much of a future gain is taxed as wages rather than as a capital gain. For a two-income family in California or Washington, it can be worth six figures.

Definitions: what restricted stock and RSUs actually are

Restricted stock (often called a restricted stock award, or RSA) is actual company stock transferred to you that is subject to a “substantial risk of forfeiture”, usually a time-based vesting schedule. The shares sit in your name from day one. You typically get voting rights and dividends, but you cannot sell or transfer the shares until they vest, and unvested shares go back to the company if you leave. Restricted stock is most common at early-stage private companies and for founders, executives and board members.

Restricted stock units are an unfunded, unsecured promise by your employer to give you shares (or their cash value) once vesting conditions are met. Until then you hold no stock at all, so there are no votes and no dividends, though many plans pay “dividend equivalents” at vest. RSUs are the standard equity grant at large public companies, including most big tech and biotech employers on the West Coast.

The IRS treats these two very differently. Restricted stock is “property” under Section 83 of the tax code from the day it is transferred. An RSU is not property until shares are actually delivered, because Treasury rules say an unfunded, unsecured promise to pay in the future is not property (Treas. Reg. §1.83-3(e)).

Restricted stock vs RSU at a glance

How restricted stock is taxed, with and without an 83(b) election

Without an election, restricted stock is taxed as each tranche vests. The fair market value of the shares that vest, minus anything you paid for them, is compensation income on your W-2. Any growth after the vest date is a capital gain or loss when you sell (IRS Publication 525, “Restricted Property”).

With an 83(b) election, you choose to be taxed on the grant date instead. You report the value of the shares at grant (minus what you paid) as wages now, and all later growth becomes capital gain, with the holding period starting at grant. You must file the written statement, or IRS Form 15620, no later than 30 days after the shares are transferred to you. Publication 525 describes no extension of that window, so treat the 30th day as a hard deadline.

The trade-off is real. If you file an 83(b) and later forfeit the shares, for example by leaving before they vest, you cannot deduct the income you already reported: your loss is the amount you paid for the shares minus anything you get back (Publication 525). If you keep the shares and the company later fails, the income you reported is part of your basis, so it becomes a capital loss, which is worth far less than the wage tax you prepaid. An 83(b) is a bet that you will stay and that the stock will be worth more at vest than at grant.

Dividends follow the same split. Publication 525 says dividends paid on restricted stock you have not elected to include in income are extra compensation, reported as wages. If you filed an 83(b), they are treated the same as any other dividends and reported on Form 1099-DIV instead.

How RSUs are taxed, and why 83(b) does not apply

RSUs are taxed when shares are delivered, which for most plans is the vest date. The full market value of the delivered shares is wages on your W-2, subject to federal income tax, Medicare tax and, in California, state income tax and SDI. Your cost basis in the shares equals the value that was taxed, and the capital gains holding period starts that day.

Because an RSU is not property until delivery, you cannot file an 83(b) election on RSUs. This is one of the most common errors in online equity guides. Some plans let employees defer delivery past vest under a deferred compensation arrangement, which moves the income tax date, but that is a plan design feature, not an 83(b) choice. Performance share units (PSUs) work like RSUs for tax purposes; the difference is that the number of shares you receive depends on company performance targets, not just staying employed.

The cash flow trap is withholding. For 2026, employers may withhold federal income tax on supplemental wages such as RSU vests at a flat 22%, rising to a mandatory 37% only on supplemental wages over $1,000,000 in the calendar year (IRS Publication 15). Withholding is not the tax owed. A family whose top federal bracket is 35% or 37% usually owes more in April. Our guides on withhold to cover versus sell to cover and how RSU income is calculated go through the mechanics.

Worked example: one RSU grant and one restricted stock grant in the same California household

Assumptions (illustrative): a married couple in San Mateo County filing jointly, two children aged 4 and 7. Spouse A works at a public tech company. Spouse B leaves a large biotech to join an early-stage startup as a vice president. Household taxable income is about $1,050,000 before each equity event below (treated as the same for federal and California purposes, a simplification), and each event is measured on its own against that base. The next dollar is in the 37% federal bracket for 2026 (MFJ taxable income over $768,700) and the 11.3% California bracket (2025 schedule, $891,542 to $1,485,906, used because California has not published 2026 brackets), plus California’s 1% Behavioral Health Services Tax on taxable income over $1,000,000, for 12.3% in total. Both spouses already earn above the 2026 Social Security wage base of $184,500, so only Medicare applies on extra wages: 1.45% plus the 0.9% Additional Medicare Tax. California SDI is 1.3% of all wages for 2026. Combined marginal rate on extra wages: 37% + 12.3% + 1.45% + 0.9% + 1.3% = 52.95%. Above $1,485,906 of taxable income, California’s marginal rate rises to 13.3% (12.3% plus the 1%), so this is not a ceiling.

Spouse A: an RSU vest

1. 1,000 RSUs vest at $400 per share: $400,000 of W-2 wages.
2. Federal withholding at the 22% flat rate: $88,000.
3. Federal tax actually owed at 37%: $148,000. Shortfall: $60,000, before any California gap.
4. Total tax at the 52.95% combined rate: about $211,800. The shares Spouse A keeps have a basis of $400 each.

There is no election to make. The decisions are how much to sell at vest, whether to raise withholding or make estimated payments, and how much single-stock exposure the family is willing to carry.

Spouse B: a restricted stock grant

The startup grants 200,000 restricted shares vesting over four years (50,000 per year). Fair market value at grant is $0.10 per share and Spouse B pays nothing, so the grant is worth $20,000.

• With an 83(b) filed within 30 days: $20,000 is wages now. Tax at 52.95%: $10,590. If the stock is worth $5 per share when all shares have vested, the extra $980,000 of value is not taxed at vest. It becomes capital gain when Spouse B sells. Federally, a sale held more than a year after grant is taxed at long-term rates (20% at this income, plus 3.8% Net Investment Income Tax). California taxes the gain as ordinary income anyway, because California has no lower rate for capital gains.
• Without an 83(b): each year, 50,000 shares vest. At $5 per share that is $250,000 of wages per year, about $132,375 of tax per year at 52.95%, or about $529,500 over four years, owed on shares that may still be illiquid.
• If things go wrong: with the 83(b), the $10,590 of tax is already paid. If Spouse B leaves early and forfeits the unvested shares, there is no deduction for the $20,000 reported. If the company fails after vesting, the $20,000 becomes a capital loss. Without an 83(b), nothing was taxed up front, so nothing is lost.

At a $0.10 price, the 83(b) costs little and protects a lot of upside. At a later-stage company where the grant is worth $500,000, the same election means writing a check of about $265,000 on stock you cannot sell and might forfeit. Same rule, very different decision.

The same family in Washington

A Seattle-area family pays no state tax on wages in 2026, so the RSU and the 83(b) income carry only federal tax and Medicare (plus the WA Cares premium of 0.58% of wages). On the later sale, Washington taxes long-term capital gains from stock at 7%, and 9.9% on taxable gains above $1,000,000, after a standard deduction that was $278,000 for 2025 (WA Department of Revenue). Washington has also enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028 (WA DOR), so multi-year vesting schedules signed today may run into it.

Restricted stock and “control stock” are a different use of the word

People searching “control stock vs restricted stock” are usually asking about securities law, not compensation. Under SEC Rule 144, “restricted securities” are shares acquired in an unregistered private sale, such as stock bought in a private placement or received in some acquisitions. “Control securities” are shares held by an affiliate of the company, such as a senior officer, director or large holder, regardless of how they were acquired. Both can be resold publicly only if the conditions in Rule 144 or another exemption are met (17 CFR §230.144). An executive’s vested RSU shares are not restricted for tax purposes, but they may still be control securities, which is why company insiders sell under trading windows and pre-planned trading plans.

Decision checklist when your offer includes either one

• Which form is it? Read the grant agreement, not the offer letter summary. “Restricted stock” and “RSU” are often used loosely.
• If restricted stock: what is the value per share today, and what would the 83(b) tax be? Put the 30-day deadline on the calendar the day the shares are issued. See our guide to drafting a Section 83(b) election.
• If RSUs: estimate each vest’s tax at your real marginal rate and plan for the gap above 22% withholding.
• Concentration: how much of the household’s net worth is now one employer, counting both salaries? Two incomes tied to one stock is a risk to the family, not just to a portfolio.
• Liquidity: for private company stock, how and when could you sell? Taxes on vesting private shares are due in cash.

Common mistakes we see

• Trying to file an 83(b) on RSUs. It does not apply.
• Missing the 30-day 83(b) window on restricted stock because the paperwork arrived after the start date.
• Treating 22% withholding as the full tax bill on a large vest.
• Assuming California gives a lower rate on long-term gains from an 83(b). It does not; the federal benefit is real, the state benefit is mostly timing.
• Paying tax twice on the same income at sale. The value taxed at vest is your basis; if the broker’s 1099-B shows zero basis, the gain is overstated. Our guide on reporting RSUs on your tax return shows the fix.

What to write down for your kids

Equity grants are where a lot of family wealth in the Bay Area and Seattle is actually created, and children rarely learn how. A one-page note on why you filed (or skipped) an 83(b), how much single-stock risk you decided to carry, and when you chose to sell is the kind of reasoning that does not survive in a brokerage statement. Conversations fade. Documentation compounds.

Frequently asked questions

Do you get dividends on restricted stock?

Usually yes, because the shares are issued to you at grant. Without an 83(b) election, the IRS treats those dividends as extra wages, reported on your W-2. If you filed an 83(b), they are treated like any other dividends and reported on Form 1099-DIV. RSU holders receive no dividends before vest; any dividend equivalents a plan pays are taxed as wages.

Are RSUs better than stock options?

Neither is better in general. RSUs have value as long as the stock is above zero and need no cash to exercise, which suits a public company employee. Options only pay if the stock rises above the strike price, but they can carry more upside per grant and more control over timing. The right comparison depends on the grant size, company stage and your tax bracket.

What is the difference between an RSU and a PSU?

Both are promises to deliver shares later and are taxed as wages when shares are delivered. With an RSU, the number of shares is fixed and vests with time. With a PSU, the final number depends on performance targets, such as revenue or relative stock return, and can end up above or below the target grant.

Next step: pull your most recent grant agreement and confirm which type you hold and your next vest date. If an equity event is coming this year, the tax management and investment risk management pages explain how Age Five Family Office™ handles vest planning and concentrated stock for families. This is general education, and the right move depends on the family’s full 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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