Stock Options vs RSUs: Key Differences for High-Income Families

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

The difference between RSUs and stock options is what you receive. An RSU (restricted stock unit) is a promise to give you a share when it vests, so it is worth the full share price and you pay nothing for it. A stock option is the right to buy a share at a fixed strike price, so it is worth only the amount the stock rises above that price, and you decide when (and whether) to exercise.

That one difference drives everything else: RSUs keep some value even if the stock falls, options can expire worthless, and the tax arrives at different moments. For a household earning $750,000 to $3 million in California or Washington, the tax timing and the concentration risk usually matter more than which grant looks bigger on the offer letter.

RSUs vs stock options side by side

RSUs are not stock options. They have no strike price and nothing to exercise. If your equity statement shows a strike or exercise price, you hold options. Our guide on whether RSUs have a strike price walks through how to read the grant documents.

How each is taxed for a high-income W-2 family

RSUs: wages on the day shares are delivered

When RSUs vest and shares are delivered, the full market value is wage income on your W-2. It is subject to federal income tax, Medicare (1.45% plus the 0.9% Additional Medicare Tax above $250,000 of joint wages for 2026), Social Security until you pass the $184,500 wage base for 2026, and state payroll taxes. Your employer typically withholds federal tax at the 22% supplemental rate, or 37% on supplemental wages above $1,000,000 in the year (IRS Publication 15, 2026). In the 35% and 37% brackets, 22% withholding usually leaves a balance due in April.

An 83(b) election is not available for RSUs. Until shares are delivered, an RSU is only an unfunded promise, not property (Treas. Reg. 1.83-3(e)).

Nonqualified options: wages when you exercise

With NSOs, nothing is taxed at grant or vest. When you exercise, the spread (market price minus strike price, times the number of shares) is compensation income, taxed like a bonus (IRS Publication 525). Any later rise in the stock is capital gain. The control over timing is the main advantage: you can spread exercises across tax years.

Incentive stock options: no regular tax at exercise, but AMT

ISOs are not taxed for regular income tax at exercise, but the spread may be included in your alternative minimum taxable income (it generally is if you still hold the shares at year end). If you hold the shares more than two years from grant and more than one year from exercise, the gain over the strike price is long-term capital gain federally (IRC 422(a), IRS Publication 525). For 2026 the married-filing-jointly AMT exemption is $140,200 and phases out at 50 cents per dollar of AMT income above $1,000,000, so higher earners lose more of it. ISOs first exercisable in one year above $100,000 of stock (valued at grant) are treated as NSOs. To keep ISO status after leaving a job, you generally must exercise within three months (one year if you leave because of disability) (IRC 422(a)(2), Publication 525).

California vs Washington: the same vest, a different bill

California taxes RSU income and NSO spreads as ordinary income, and it has no lower rate for capital gains, so even a qualifying ISO sale is taxed by California at ordinary rates (FTB). The top rate is 13.3% (12.3% plus the 1% Behavioral Health Services Tax on taxable income above $1,000,000, 2025 schedule), and CA SDI is 1.3% of all wages for 2026 with no cap (EDD).

Washington has no wage income tax for 2026, so a vest or NSO exercise there carries federal tax, Medicare and the 0.58% WA Cares premium (unless exempt). When you later sell shares at a long-term gain, Washington’s 7% capital gains tax applies above the annual standard deduction ($278,000 for 2025, the latest published; 9.9% on taxable gains above $1,000,000) (WA DOR). Washington has also enacted a 9.9% income tax on AGI above $1,000,000 starting January 1, 2028 (WA DOR), which will matter for Seattle-area families planning multi-year exercises.

Worked example: a $900,000 Bay Area household

Assumptions (hypothetical): a married couple in San Jose filing jointly, $900,000 of combined W-2 salary, taxable income of about $830,000 before any equity income (we use the same figure for California to keep the math simple), each spouse already past the Social Security wage base. One spouse’s employer offers a new-hire grant as either 1,000 RSUs or 3,000 NSOs with a $100 strike price. The stock is $100 at grant. Some companies offer this kind of choice; the 3-to-1 ratio is illustrative.

What each grant is worth in four years

The break-even is $150: the strike times the ratio divided by the ratio minus one ($100 x 3 / 2). Below that, RSUs win. Above it, options win, and the gap widens fast. The question for the family is not “which is better” in general. It is how confident they are that this stock rises more than 50% over the vesting period, and how much of their net worth already depends on the same company.

The tax on $150,000 of RSU income or NSO spread

Federal withholding at 22% on $150,000 is $33,000, about $22,500 short of the $55,500 federal tax. Families at this income are often surprised by that gap every April. California withholding on supplemental pay can fall short as well, so compare year-to-date withholding to a projection each autumn. The sell-to-cover mechanics are covered in our withhold-to-cover vs sell-to-cover guide.

RSAs, RSUs and ESOPs: three terms people mix up

• RSA (restricted stock award). You own actual shares from day one, subject to vesting. Because it is property, you can file an 83(b) election within 30 days of the transfer to be taxed on today’s value instead of the value at vest (Publication 525). This matters mostly at early-stage companies when the share value is low. See our guide to the 83(b) election letter.
• RSU. A promise of shares later. No 83(b), taxed at delivery. At private companies, RSUs often need a second trigger such as an IPO before shares are delivered, explained in RSUs at private companies.
• ESOP (employee stock ownership plan). A qualified retirement plan that holds employer stock for employees (IRS). It is not a grant you receive or choose. Many people who search “ESOP vs RSU” mean an ESPP, the discounted stock purchase plan common at public companies, which is a separate topic covered in when to sell ESPP shares.

Are RSUs better than stock options for your family?

For most W-2 families at large public companies, RSUs are the steadier asset: they hold value in a flat or falling market and need no cash to acquire. Options can be worth more, but only if the stock rises well past the strike, and they carry decisions (when to exercise, how to fund it, AMT for ISOs) that a busy household can let slip. Four questions settle it:

1. How much of your net worth is already in this one stock? If unvested equity plus held shares is a large share of what you own, the lower-risk RSU usually fits better.
2. Can you fund an exercise? NSO and ISO exercises can need six figures of cash for the strike and the tax, unless the company allows a cashless exercise.
3. What happens if you leave? Unvested RSUs and options are usually forfeited. Vested options often must be exercised within a short window after you leave, so check the plan.
4. Which state will you live in when the income arrives? A move between California and Washington changes the bill on the same grant, and multi-state allocation rules apply to equity earned while you lived in California.

Common mistakes we see

• Treating 22% withholding as the tax owed. At 35% or 37% federal plus California, it rarely is.
• Holding every vested RSU “because it might go up”. Keeping vested RSUs is the same decision as buying the stock with that cash.
• Letting options expire, or missing the post-departure window.
• Exercising ISOs late in the year without running an AMT projection first.
• Comparing grants by share count instead of by value at a few realistic prices, as in the table above.

What to write down for your kids

Equity grants are one of the biggest money decisions a two-career family makes, and children see only the result (the house, the move, the college fund), never the reasoning. A one-page note on why you chose RSUs or options, what price you assumed, and when you planned to sell is the kind of record a FamilyKnowledge® Library is built from. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”

Frequently asked questions

Are RSUs stock options?

No. An RSU is a promise to deliver a share when it vests, with no purchase price. A stock option is a right to buy shares at a set strike price. RSUs are taxed as wages when the shares are delivered; options are taxed when you exercise (NSOs) or when you sell or under AMT (ISOs). If your grant shows a strike price, it is an option.

Do RSUs or options lose value if the stock drops?

Both lose value, but differently. An RSU falls in step with the share price and keeps whatever value remains. An option is worth only the amount the price exceeds the strike, so if the stock falls below the strike it is underwater and worth nothing to exercise, even though it may recover before it expires.

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

No. Treasury regulations treat an RSU as an unfunded promise, not property, until shares are delivered, so section 83(b) does not apply. The election is available for restricted stock awards and early-exercised options, and it must be filed within 30 days of the transfer. RSUs are taxed as wages at vest and delivery.

Next step

Pull your equity statement and list every grant by type, vest date and, for options, strike price and expiration date. Then model each at two or three share prices, as in the example above. If you would like help turning that into a year-by-year vest, exercise and tax plan, see our tax management and investment risk management services, or start with a Tax & Wealth Assessment.

This is general education, not individual tax advice. The right choice depends on your family’s full picture, including your plan documents and other income.

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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