Vesting feels like winning. The shares hit your account, the broker confirmation lands, and for about ninety seconds it feels like the company just handed you an extra bonus.
Then the IRS reminds you that winning comes with a bill. And the rest of the year is spent making sure the withholding actually covers it.
This guide covers what RSUs actually are, the three vesting structures you'll see at private and public tech companies, the tax mechanics that catch most people off guard, and the decisions that matter once shares are yours.
If you want the broader equity-comp landscape (ISOs, NSOs, ESPPs, the whole picture), start with our equity compensation master guide. This post is the deeper dive on RSUs specifically.
A Promise, Not a Payment
A restricted stock unit is a promise of company stock. When your employer grants you 4,000 RSUs, they're saying: when these conditions are met, 4,000 shares are yours. The conditions are what make the stock unit "restricted." Meet them, the shares vest, and you own the stock.
No money changes hands at grant. RSUs aren't options. There's nothing to exercise and no strike price to pay. The complexity sits entirely in vesting and taxes.
Three Flavors of Vesting
The plan documents spell out the specifics, but vesting conditions usually fall into one of three buckets.
Single-trigger. Continued employment over a vesting period. Most public-company RSU grants run on a four-year schedule with a one-year cliff: nothing for the first year, then 25% at the cliff, then quarterly or monthly tranches thereafter. Some companies use front-loaded schedules that vest more in years one and two; others stick with the older 25%-per-year structure. Whatever the cadence, the only condition is that you're still employed when each tranche hits.
Double-trigger. Continued employment plus a liquidity event: usually IPO, acquisition, or a qualifying tender offer. Common at private companies because RSUs are taxed at vesting, and a private-company employee can't easily sell shares to cover the resulting tax bill. The liquidity trigger fixes that. You hit your time-based vesting milestones, the shares accrue but don't vest, and the moment the company goes public (or gets acquired), every accrued tranche vests at once.
This is where the scale of the tax event sneaks up on people. If you've been at a private company for four years on a four-year double-trigger grant of 20,000 RSUs, an IPO doesn't vest 5,000 shares: it vests all 20,000. Often during the same calendar year your stock price is at its all-time high. You can do the math.
Performance Share Units (PSUs). A twist on single-trigger vesting where the condition is a performance metric (revenue, EBITDA, total shareholder return, customer growth) measured over a defined window. Miss the metric, the grant expires worthless. Hit the metric exactly, you get the named share count. Exceed it, and some grants apply a multiplier that pays out more than the named count.
PSUs show up most often at the executive level and at companies trying to align comp with specific operating goals. If you're a senior IC, you're more likely to see straight RSUs. If you're a director or above at a public company, expect a mix.
The Tax Hits at Vesting
Nothing is taxed at grant. Vesting is what triggers ordinary income, and selling later can add a capital gain or loss on top of it. The day shares vest, the IRS treats their fair market value as ordinary compensation income, the same bucket as your salary.
Public-company shares are valued at the closing price on the vesting date. Private-company shares are valued at the most recent 409A valuation. So if 1,000 shares vest at an $80 closing price, you have $80,000 of ordinary income that day, taxed at your marginal rate. Federal, state, FICA, the works.
What trips people up is the withholding mechanics, because RSU income is technically "supplemental income": same category as bonuses and commissions. Your employer doesn't withhold at your tax rate. It withholds at a flat rate set for supplemental income: 22% on the first $1 million of it in a year, 37% on anything above that.
That 22% rate is the single biggest cause of underpayment surprises in this entire category.
The 22% Trap
Here's where mid-career tech leaders get burned, predictably, every April.
Federal supplemental withholding is 22%. Your actual marginal tax bracket, once your base salary, RSU vesting, and any other equity events are stacked together, is usually 32%, 35%, or 37%. Your employer withholds at 22% by default. You owe at your real bracket. The gap is your problem to settle at filing.
Consider a hypothetical senior product manager at a public tech company. Married, filing jointly. Base salary of $260,000. Annual bonus of $80,000. RSU vesting of $400,000 across the year. Spouse earns $180,000. Strip out the RSUs and the household's taxable income is about $488,000: the $520,000 of salary and bonus less the standard deduction. That tops out in the 32% bracket. Now stack $400,000 of RSU income on top. It fills the rest of 32%, runs through the entire 35% bracket, and pushes roughly $119,000 into 37%.
On the $400,000 of RSU income, the company withholds federal tax at 22%: about $88,000. Actual federal tax owed on that $400,000 is about $142,000.
That's about a $54,000 federal tax bill due at filing, plus state, plus any Medicare surtax, plus possible underpayment penalties.
The fix isn't complicated, but it does require running the numbers. Either bump up federal withholding through payroll for the rest of the year, or make estimated quarterly payments to close the gap. The harder part is having the cash on hand when the payment is due. Estimated payments are owed for the quarter the income landed in, so the money comes from shares sold at vesting or from somewhere else on the balance sheet. Either way it requires actually projecting your tax liability for the year, which is where most DIY setups fall apart.
One ancillary detail worth flagging: Social Security tax (6.2%) applies to RSU income only up to the annual wage base, which is $184,500 in 2026. Most senior tech employees blow through that on base salary alone, so RSU vesting later in the year usually doesn't generate additional Social Security tax. Medicare (1.45%) applies to all of it. So does the 0.9% Additional Medicare surtax for households over $200k single / $250k joint.
Sell vs. Hold: The Boring Truth
Once shares vest, the company sells some of them automatically to cover withholding. The remaining shares sit in your brokerage account, fully yours. From there, two doors.
Sell at vesting. Your cost basis is the FMV at vesting: the same dollar amount you already paid ordinary tax on. If you sell on or near the vest date, there's effectively no capital gain or loss. The proceeds become cash you can deploy elsewhere: diversification, tax-advantaged accounts, a down payment, the kid's 529. No additional tax friction.
Hold and sell later. You participate in any future appreciation (or depreciation). Your holding period for capital gains starts on the vest date. Sell within a year, gains are taxed at ordinary rates. Sell after a year, long-term capital gains rates apply (0%, 15%, or 20%, plus the 3.8% Net Investment Income Tax for high earners).
The mental trap is treating "hold" as the conservative default and "sell" as taking some kind of action. It's the opposite. Holding is the active choice: you're voluntarily concentrating more of your wealth in your employer's stock, on top of the concentration that already exists from your salary and benefits.
The cleanest reframe: imagine the company deposited the cash equivalent of your vested RSUs in your account instead of shares. Would you immediately use that cash to buy the same dollar amount of company stock?
If the answer is no, as it usually is, then the answer to "should I hold the vested shares" is also no.
This isn't a moral judgment about your employer. It's a question about whether a sane portfolio is this concentrated in one tech company.
Concentration Nobody Decided On
For senior tech employees with multiple grants vesting on overlapping schedules, concentration arrives without anyone deciding to concentrate.
A typical pattern: four-year grants stacked annually, each vesting quarterly, plus a refresh grant at every promotion or comp review. Within three or four years, most senior employees have shares vesting almost continuously, and if they're not actively selling, the position grows mechanically. Add unvested grants on the cap table, ESPP holdings, and in some cases stock-based 401(k) match invested back into employer stock, and one company starts to show up on nearly every line of the household balance sheet.
The asymmetry of the risk is the part that deserves more weight than it usually gets. Your salary depends on the company. Your benefits depend on the company. Your unvested equity depends on the company. Your vested-but-unsold equity depends on the company. If something breaks at work, whether a layoff, an acquisition that wipes out a class of equity, a leadership change or a regulatory shock, multiple legs of your financial life break at the same time.
The names that come up most often when people make this argument (Enron, Lehman, WeWork, FTX) are extreme examples. The everyday version is less dramatic and more common: a normal mature company that gives back 30–50% of its market cap over a couple of years for unremarkable reasons. The math on that doesn't require fraud or scandal. Just regression to the mean.
Holding company stock is a bet that this one stock will outperform, and it's worth asking what the bet is based on. Sometimes there's a real thesis. Most of the time it's familiarity with a stock that shows up in your account every quarter.
The Decisions Inside the Decision
If RSU planning ended at "sell at vesting and pay your taxes," the spreadsheet version would be enough. It doesn't. RSU vesting is an event that interacts with most of the other moving pieces of your financial life, and the second-order decisions are usually where the real money sits.
A short list of what RSU vesting touches, all of which a serious planning conversation should account for:
Tax bracket management. Large RSU events can push you into a bracket where the right call on deductible contributions, charitable bunching, tax-loss harvesting, and Roth-vs-traditional 401(k) elections is different from the answer in a normal year. A year when your grants vest at $80 a share is not the same tax planning year as one where they vest at $40.
RSUs and ISOs in the same year. You pay the higher of regular tax or AMT. RSU income raises your regular tax, which raises the bar AMT has to clear, so a heavy vesting year can create room to exercise more ISOs before AMT actually costs you anything. That room is only useful if you know it's there. The AMT mechanics for equity comp are worth understanding before you exercise ISOs in a big vesting year.
State tax sourcing. RSUs granted while you worked in California stay partly taxable by California after you move, at up to 13.3%. States generally source the income to where you worked between grant and vest, so a move to Texas doesn't wipe out the California share of a grant that was earned there. Multi-state vesting after a relocation is an entire planning conversation in itself, and the trailing-tax exposure surprises almost everyone who moves out of a high-tax state with unvested grants in flight.
Charitable gifting of appreciated stock. If you do hold past the long-term threshold and the stock appreciates, donating shares directly to a donor-advised fund instead of selling and donating cash skips the capital gains tax entirely. For people who already give meaningfully, this is a free upgrade.
Cash flow modeling for the tax bill. If you have a big RSU year coming, the question of where the underwithholding cash comes from, whether operating savings, sold shares or the taxable account, is a real conversation rather than an afterthought.
Estate and beneficiary review. Every vesting event grows the share of your net worth in the brokerage account. Make sure the beneficiary designations on those accounts match your estate documents.
Each of these is a small thing, and none of them is the point on its own. They pile up, and they interact, which is why they're worth deciding together rather than one at a time as each one surfaces.
What the Shares Are For
Watching the share price climb after you sell is painful. So is watching it crater after you don't.
If you've been granted RSUs once, you'll probably be granted them again. Every grant going forward replaces the shares you sold today. The story is not over.
The frame that helps most: vested RSUs are the most flexible part of your compensation, not a windfall and not a long-term investment in your employer. Selling them, paying the tax, and putting the proceeds into a diversified portfolio turns equity comp into wealth that doesn't move with your employer's next earnings call.
For some people that's a decade of compounding. For others it's two years and a down payment. Which one it is depends on what's happening in the rest of your financial life, and that's where the real planning sits.