An RSU payment is a share of company stock given to you as part of your pay, released to you over time on a schedule your employer sets.

RSU stands for Restricted Stock Unit. When your company grants you an RSU, you are promised a certain number of shares of the company's stock. You do not own those shares yet. Instead, the company holds them and releases them to you gradually — usually over three to four years — as long as you stay employed there. On the day the shares are released to you, that release is called vesting, and the payment you receive is the RSU payment.

RSU payments are different from a regular paycheck. A paycheck is cash. An RSU payment is stock — ownership in the company. The value of that stock changes every day the stock market is open. If the stock price goes up between the day you were granted the RSU and the day it vests, the payment is worth more. If the stock price goes down, the payment is worth less.

Key Takeaways

  • An RSU payment is company stock released to you on a vesting schedule, usually spread over three to four years.
  • You owe income tax on the value of the stock on the day it vests, whether or not you sell it.
  • Your employer typically withholds shares to cover the tax bill instead of taking cash from your paycheck.
  • RSU payments are part of your total compensation and should be included when you calculate your annual income for taxes or loan applications.

How the vesting schedule works

When your company grants you an RSU, it comes with a vesting schedule. This is the timeline that controls when you actually receive the shares. The most common schedule is a four-year vest with a one-year cliff. This means you receive nothing for the first year. At the end of year one, you receive 25 percent of the shares all at once. Then the remaining 75 percent vests in equal monthly or quarterly chunks over the next three years.

Some companies use different schedules. A few vest shares monthly from day one. Others use a two-year schedule or a five-year schedule. Your offer letter or equity grant document will tell you exactly when your shares vest. If you leave the company before a vesting date, you lose the shares that have not yet vested — they go back to the company. This is why RSUs are sometimes called "golden handcuffs": they give you a financial reason to stay.

The tax bill on an RSU payment

On the day your RSU vests, the IRS treats it as income. You owe federal income tax, state income tax (in most states), and Social Security and Medicare taxes on the value of the shares on that vesting date. The value is the stock price multiplied by the number of shares vesting that day.

Your employer usually handles this by withholding shares. If 100 shares vest and the stock price is $50 per share, the value is $5,000. Your employer might withhold 30 or 40 shares to cover the estimated tax bill and give you the remaining 60 or 70 shares in cash value. The exact withholding rate depends on your tax bracket and your state. You will see this withholding on your pay stub as a separate line item.

This tax bill happens whether you sell the shares or hold them. Many people are surprised by this. You can receive an RSU payment, hold the stock, and still owe taxes on it. If the stock price later drops, you still owed tax on the higher price from the vesting date — you cannot get that tax back.

What happens after the shares vest

Once the shares vest and the tax withholding is complete, the remaining shares are yours to keep or sell. You can hold them as long as you want, hoping the price goes up. You can sell them when ready. You can sell some and hold some. There is no rule about what you must do.

If you sell the shares later and the price has changed, you will owe capital gains tax on the difference between the vesting price and the sale price. If the stock went up, you owe tax on the gain. If the stock went down, you can claim a loss on your taxes. This is separate from the income tax you already paid on the vesting date.

RSU payments and your financial picture

When you are calculating your total income — for a mortgage process, a loan, or your tax return — include the value of your RSU payments. Add up the number of shares vesting each year and multiply by the current stock price (or the price on the vesting date if you are looking back at a past year). This is income, even though it is not cash in your bank account yet.

If you receive RSU payments, you should also think about diversification. If a large portion of your wealth is tied up in your employer's stock, you are taking on extra risk. If the company struggles, both your job and your investments could be in trouble at the same time. Many financial advisors suggest selling at least some shares when they vest and putting the money into other investments.

RSU payments versus stock options

RSUs are sometimes confused with stock options, but they work differently. With an RSU, you are may provide to receive shares on the vesting date (assuming you stay employed). The value is based on the stock price that day. With a stock option, you have the right to buy shares at a price set when the option was granted. If the stock price is lower than that set price when the option vests, the option may be worthless. RSUs have value as long as the company's stock has any value at all.

Because of this difference, RSUs are often considered more valuable than stock options for employees. You do not have to guess whether the stock will go up. You receive the shares regardless, and their worth is determined by the market price on the vesting date. This makes RSUs a more predictable part of your compensation package.

Frequently Asked Questions

Do I have to sell my RSU shares when they vest?

No. Once the shares vest and the tax withholding is complete, you own them. You can hold them, sell them, or sell some and hold some. There is no requirement to sell on any particular timeline.

What if my company's stock price drops before my RSUs vest?

You still owe income tax on the value of the stock on the vesting date, even if the price has dropped since you were granted the RSU. The tax is based on the price on the day the shares vest, not the day they were granted.

Can I lose my RSU shares if I leave the company?

You lose any shares that have not yet vested. If you have a four-year vesting schedule and leave after two years, you keep the shares that vested in those two years but forfeit the remaining two years of shares. Vested shares are yours to keep.

Are RSU payments counted as income for a mortgage or loan?

Yes. Lenders typically count RSU income as part of your total compensation. You will need to show your grant documents and vesting schedule to prove the income is ongoing. Some lenders may discount the value if the vesting period is short or if the company is new.

What is the difference between an RSU and a bonus?

A bonus is usually cash paid once or twice a year based on performance or company results. An RSU is stock released on a fixed schedule regardless of performance. Both are taxed as income, but RSUs tie your wealth to the company's stock price in a way a bonus does not.