Are RSUs Stock Options? How They Differ, With Tax Examples for CA and WA Families

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

No. RSUs are not stock options. A restricted stock unit is a promise from your employer to deliver shares (or their cash value) once you meet a vesting condition, and it costs you nothing to receive. A stock option is the right to buy shares at a fixed strike price, so it only has value when the stock trades above that price, and you have to pay the strike (or sell some shares to cover it) to own anything.

That difference drives everything else: when tax is due, how much risk you carry, and what your family has to decide each quarter. Below is how each one works for a dual-income household in California or Washington earning $750,000 to $3 million, with the numbers worked through.

RSUs, NSOs, ISOs and restricted stock side by side

Most large public employers (big tech, pharma and biotech) pay equity mainly in RSUs. Options are more common at earlier-stage companies and in older grants. Restricted stock awards (RSAs) are a third, less common form that people often confuse with RSUs.

One correction to a common claim: you cannot file an 83(b) election for RSUs. Treasury regulations treat an RSU as an unfunded promise, not property, until the shares are delivered (Treas. Reg. §1.83-3(e)). The 83(b) election, due no later than 30 days after the transfer, applies to restricted stock and early-exercised options (IRS Publication 525). If you hold RSAs, the mechanics are in our guide to drafting an 83(b) election letter.

How RSUs are taxed at vest in California and Washington

When RSUs vest and the shares are delivered, the full market value is wages. It shows up on your W-2, and your employer withholds on it as supplemental pay. For 2026 the optional flat federal rate is 22%, and the rate is a mandatory 37% on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15). Your cost basis in the shares is their value at vest, so selling right away creates little or no further gain.

The problem for this household is that 22% is a withholding rate, not your tax rate. For 2026, married couples filing jointly reach the 35% bracket at $512,450 of taxable income and 37% above $768,700 (Rev. Proc. 2025-32). On top of that sits Medicare tax of 1.45% with no cap, plus the 0.9% Additional Medicare Tax on joint wages over $250,000.

State treatment is where California and Washington families diverge. In California, RSU income is taxed as ordinary income at up to 13.3% (12.3% top bracket plus 1% on taxable income over $1,000,000, 2025 schedules), plus 1.3% SDI on all wages for 2026 with no wage cap (EDD). Washington has no tax on wages in 2026 (WA DOR), but employees pay the WA Cares premium of 0.58% of wages with no cap, and the state has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028. High-earning Washington families may want to keep that date in mind when planning share sales and option exercises.

Worked example: a $200,000 RSU vest for a $900,000 household

Assumptions (illustrative): married filing jointly, two children under 10, $700,000 of combined salary and bonus, $200,000 of RSUs vesting in 2026, standard deduction of $32,200, Social Security wage base already met by salary. Taxable income is about $867,800, so the RSU income sits on the slice from $667,800 to $867,800.

For simplicity the California column uses the same taxable income for the state calculation; actual California deductions differ slightly. The point holds either way: nearly half of the vest goes to tax in California, and the federal withholding leaves a balance of almost $28,000 that the family must cover through estimated payments or extra W-4 withholding. Families who miss this often find out in April. Our guides on withhold to cover versus sell to cover and calculating RSU value go deeper on the mechanics.

How stock options are taxed: NSOs versus ISOs

Nonqualified options

With an NSO, nothing is taxed at grant or vest. When you exercise, the spread (market price minus strike price) is wages, taxed and withheld just like an RSU vest. Example: 4,000 options with a $40 strike, exercised when the stock is at $100. You pay $160,000 to buy the shares and have $240,000 of wage income. If the household above exercised these on top of its $900,000, the whole spread would be taxed at the 37% federal rate for 2026, and in California its taxable income would pass $1,000,000, where the extra 1% applies. A cashless exercise sells enough shares to cover the strike and tax; see tax on a cashless exercise.

Incentive stock options

ISOs get special treatment. There is no regular income tax at exercise, and if you hold the shares more than two years from grant and more than one year from exercise, the whole gain over the strike is long-term capital gain (IRC §422). Three catches matter at this income level:

• AMT. The spread at exercise counts toward the alternative minimum tax. For 2026 the joint AMT exemption is $140,200, but it phases out at 50 cents per dollar of AMT income over $1,000,000 and is gone at $1,280,400. If the $900,000 household in the example above exercised $240,000 of ISO spread, its AMT income would be about $1,140,000, so it would lose about half of the exemption ($70,000) and could owe AMT in the year of exercise, even though no shares were sold.
• California gives no capital gains break. California taxes all capital gains as ordinary income (FTB). The ISO benefit for a California family is mostly federal: 15% or 20% for 2026 (plus the 3.8% Net Investment Income Tax) instead of 35% or 37%.
• The $100,000 limit and the clock. ISOs that first become exercisable in one year above $100,000 of stock (valued at grant) are treated as NSOs for the excess. ISO status also generally requires exercising within three months of leaving the employer (IRS Publication 525), which is why many unexercised ISOs lose their special treatment or expire after a job change.

In Washington, a qualifying ISO sale is a long-term capital gain that can fall under the state’s 7% capital gains tax once a household’s gains for the year exceed the standard deduction ($278,000 for 2025, the latest published).

The decision your family actually has to make

For most RSU holders the real question is not tax. It is concentration. Once RSUs vest, the tax is already paid. Holding the shares is the same as taking a cash bonus and buying your employer’s stock with it. Ask whether you would do that with cash. If not, many families make selling at vest and diversifying their default, and it also keeps your paycheck and your portfolio from depending on the same company. See sell to cover versus same-day sale.

Options need more active decisions: when to exercise, how much cash to commit, whether an ISO exercise belongs in a low-income year, and what to do before a departure date. A short checklist helps:

1. List every grant: type, strike, vest dates, expiration and post-termination exercise window.
2. Estimate the tax for each upcoming vest or exercise, including the gap above 22% withholding.
3. Set a written concentration limit for employer stock as a share of your net worth.
4. For ISOs, model AMT before exercising, not after.
5. Decide in advance what happens to the proceeds (529s, mortgage, taxable portfolio).

Common mistakes

• Treating 22% withholding as the final tax bill.
• Holding vested RSUs by default, so employer stock quietly becomes the largest asset the family owns.
• Exercising ISOs late in the year without an AMT estimate.
• Letting options expire after a job change because no one tracked the exercise window.
• Assuming the ISO capital gains benefit applies in full to California state tax.

What to document for your kids

Children see the outcome of these decisions (a new house, a paid-off loan, a stressful April) but not the reasoning. A one-page Decision Memo each year can record your rule for selling RSUs, why you set your concentration limit where you did, and what you did with the proceeds. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” That record becomes part of the family’s FamilyKnowledge® Library, and the subject is covered in our family governance work.

Frequently asked questions

Are RSUs better than stock options?

Neither is better in every case. RSUs carry less risk because they keep value unless the stock goes to zero, and they need no cash. Options can be worth more if the stock rises far above the strike, but they can also expire worthless. At a large public company, RSUs are usually the steadier form of pay for a family that needs predictable income.

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

No. An RSU is not property for tax purposes until shares are delivered, so the 83(b) election does not apply. It is available for restricted stock awards and for early-exercised options, and it must be filed within 30 days of the transfer. RSUs are simply taxed as wages when they vest.

What is the difference between an RSA and an RSU?

With an RSA, you receive actual shares at grant that you can forfeit if you leave before vesting, and you can elect under 83(b) to be taxed at grant. With an RSU, you receive nothing until vest, when the shares arrive and are taxed as wages. RSAs are more common at early-stage companies with low share values.

Next step

Pull your equity plan statement and list every grant with its next vest or exercise date, then compare the expected tax to what will be withheld. If you would like a second set of eyes, our Tax & Wealth Assessment covers equity pay, withholding gaps and concentration in one review. For related risk questions, see investment risk management.

This article is general education, not individual tax or investment advice; the right move depends on your 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.

Connect on LinkedIn →  · About Kevin