What Is an RSU Grant? How It Works, How It Is Taxed, and What to Ask

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

An RSU grant is a promise from your employer to give you a set number of company shares in the future, once you meet the vesting conditions, usually staying employed for a set period. You pay nothing for the shares. When they vest and are delivered, their full market value is taxed as wages that year, exactly like a cash bonus, and you then own ordinary shares you can keep or sell.

For a two-income household in the Bay Area or Seattle earning $750,000 or more, the grant itself is simple. What takes judgment is the tax gap at vest, how much of the family’s net worth ends up in one stock, and which terms in the grant agreement matter if you leave. This page covers how an RSU grant works, a worked example at your income level, how RSUs compare with PSUs and options, and the questions to ask before you sign.

How an RSU grant works, from grant date to sale

Every RSU grant moves through the same four dates.

1. Grant. The company awards a number of units, often sized from a dollar value (for example, a $400,000 new-hire grant divided by an average share price over a set period). Nothing is taxed at grant, because a unit is only an unfunded promise, not property you own yet.
2. Vesting. Units vest on a schedule. A common pattern is four years with a one-year cliff, then quarterly or monthly vesting after that. Some grants also have performance conditions.
3. Delivery (settlement). Vested units convert to shares in your brokerage account. The market value on that date is wage income, reported on your W-2, and subject to income tax, Social Security (up to the wage base), Medicare and state payroll taxes.
4. Sale. Your cost basis is the value already taxed at delivery. If you sell right away, there is little or no further gain. If you hold, any later change in price is a capital gain or loss, short-term if held one year or less, long-term after that.

One correction to a common claim: you cannot file an 83(b) election on RSUs. Under Treas. Reg. §1.83-3(e), an unfunded, unsecured promise to deliver shares is not property, so there is nothing to elect on until the shares are delivered. The 83(b) election applies to restricted stock and early-exercised options, filed within 30 days of the transfer (IRS Pub 525). If you have actual restricted stock, our guide to drafting an 83(b) election letter covers that case.

Why withholding at vest usually falls short at a $900,000 income

For 2026, employers withhold federal income tax on RSU income as supplemental wages. They may use a 22% flat rate, and they must use 37% on supplemental wages above $1,000,000 in the calendar year (IRS Pub 15, 2026). The problem is that a married couple filing jointly reaches the 35% bracket at $512,450 of taxable income and the 37% bracket at $768,700 for 2026 (Rev. Proc. 2025-32). If your RSU income sits in those brackets, 22% withholding leaves a balance due in April, and possibly an underpayment penalty if withholding and estimated payments fall short of the IRS safe-harbor amounts.

Most companies settle the tax by selling or withholding some of the shares. If you want to compare those methods, see what sell to cover means for RSUs.

Worked example: a California biotech family with a $250,000 vest year

Assumptions (illustrative, not a recommendation): a married couple in the Bay Area, two children aged 4 and 7, filing jointly. One spouse is a biotech scientist with a $300,000 salary; the other is a physician earning $350,000. In 2026 the scientist has $250,000 of RSUs vest, so household wages are $900,000. After pre-tax 401(k) contributions and deductions, assume federal and California taxable income of $840,000. We treat the RSUs as the last $250,000 of income, so they fill taxable income from $590,000 to $840,000.

Federal income tax owed on the RSUs is $88,926. At the 22% flat rate, the employer withholds $55,000, so about $33,926 of federal tax is still due (plus whatever California withholding misses). The family keeps roughly $127,700 of a $250,000 vest. California brackets for 2026 had not been published when this was reviewed, so the state lines use 2025 schedules from the Franchise Tax Board; the SDI rate is from the EDD.

The fix is usually mechanical: raise W-4 withholding on salary, make a quarterly estimated payment after large vests, or both. To check your own numbers, see how RSUs count as income.

California versus Washington for the same grant

If the same family lived in Seattle in 2026, the federal and Medicare lines would not change. The California lines would disappear: Washington has no individual income tax for 2026 (WA DOR). Washington does charge a WA Cares Fund premium of 0.58% of wages with no cap, which on $250,000 of RSUs is $1,450 (WA Cares Fund).

Two Washington details matter for this reader. First, Washington has enacted a 9.9% income tax on individuals and joint filers with AGI over $1,000,000, effective January 1, 2028, so a large vest year after 2027 may be taxed by the state. Second, long-term gains on shares you hold after vest (more than one year) are subject to Washington’s capital gains tax when sold: 7% on long-term gains above the standard deduction ($278,000 for 2025, the latest published) and 9.9% on taxable gains above $1,000,000 (WA DOR). In California, there is no lower rate for capital gains at all; later growth is taxed as ordinary income (FTB).

RSU vs PSU vs stock options: what the grant type changes

“Equity grant” is the umbrella term; an RSU is one kind of equity grant. RSUs are simpler and carry less downside than options, but they give you almost no control over when income lands. Options can be taxed more favorably (ISOs in particular) but need more planning. If you are comparing offers, do RSUs have a strike price walks through the difference in detail.

Eight questions to ask about an RSU grant before you accept

1. Is the grant stated in units or dollars, and how is the unit count set? A dollar grant converted at a trailing average price can be worth more or less than the headline on the day it lands.
2. What is the vesting schedule? Ask about the cliff, the frequency after the cliff, and whether vesting is front-loaded or back-loaded.
3. Are there performance conditions? If so, it is closer to a PSU, and the payout range belongs in your planning.
4. What happens to unvested units if you leave, are laid off, become disabled or die? These terms vary widely and matter for life insurance and estate planning.
5. What happens in an acquisition? Ask whether unvested units accelerate, convert into the buyer’s stock, or are cashed out.
6. At a private company, is the grant double-trigger? Many private-company RSUs meet the time-based condition on schedule but are not settled or taxed until an IPO or sale. See RSUs at private companies.
7. How are taxes withheld on vests? Ask whether the employer uses the 22% flat rate or adds the vest to regular wages (the aggregate method). Under the flat-rate method, IRS Pub 15 allows 22% and no other percentage, so the gap shown above is usually closed through a W-4 change on salary or estimated payments.
8. Are refresh grants typical, and are there trading windows? Refreshers change how much of your pay is stock over time. Blackout periods limit when you can sell.

The decision your family actually has to make: keep or sell at vest

A useful test: if your employer paid this vest in cash, would you use the cash to buy your employer’s stock? If not, holding vested shares is the same bet. Selling at vest usually creates little extra tax, because the basis equals the value already taxed as wages. Holding adds a second risk on top of the one you already carry, since your salary, future grants and often your spouse’s career are tied to the same industry.

For a household where one employer’s stock is already a large share of net worth, the usual sequence is: decide a target maximum for any single stock, sell new vests above that line, and diversify older lots with an eye on short-term versus long-term gains. For valuing what you hold today, see how to calculate RSU value, and for a broader review of concentration see our investment risk management service.

Common RSU mistakes we see at this income level

• Treating the 22% withheld as the final tax bill, then facing a five-figure balance due in April.
• Selling shares from a vest and paying tax twice by reporting the full sale price as gain. Your broker’s 1099-B may show a zero or incomplete basis; the correct basis is the value on your W-2.
• Letting each vest pile up “for now” until one stock is a third of the family’s net worth.
• Ignoring unvested units in life insurance and estate planning, even though they may vest or be forfeited at death depending on the plan.

What to write down for your kids

Your children will not remember the grant. They may remember that a lot of money arrived every quarter and what you did with it. Write down, in a page, the rule you use: how much of any one stock you will hold, what you sell at vest, and why. As Kevin Luu, Co-Founder and Chief Learning Officer of Bright Advisers, puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” A one-page record of your RSU rule is a simple place to start.

Frequently asked questions about RSU grants

Is an RSU grant taxed when it is granted?

No. For a standard RSU, nothing is taxed at grant because you do not yet own anything. Tax applies when the units vest and shares are delivered, at the market value on that date, as wage income. A later gain or loss when you sell is a capital gain or loss measured from that delivery value.

What happens to unvested RSUs if I quit?

In most plans, unvested units are forfeited when you leave voluntarily. Some plans accelerate vesting on layoff, disability, death or an acquisition. The grant agreement and plan document control, so read the termination section before you resign or negotiate an exit, and time a departure after a vest date where possible.

Are RSUs counted in my 401(k) or benefits?

RSU income is wages on your W-2, but many 401(k) plans exclude equity compensation from the pay used for deferrals and matching. Check your plan’s definition of compensation. Bonuses may count even when RSUs do not.

Next step

Before your next vest, pull your year-to-date pay stub and your vest schedule, estimate the gap between 22% withholding and your top bracket, and set an estimated payment or a W-4 change to cover it. If you would like a second set of eyes on your equity, taxes and concentration together, our tax management team runs a Tax & Wealth Assessment for families with RSUs.

This is general education, and 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.

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