Securities & instruments
What is RSU (Restricted Stock Unit)?
A promise to deliver shares to an employee on a future vesting date - taxed as ordinary income at each vesting tranche.
RSUs are share-delivery promises rather than options to buy at a strike price. When an RSU vests, the FMV of the shares × units vesting is ordinary income - withheld at supplemental rates by the employer. The employee receives the shares immediately upon vest (no exercise needed). Common at public companies and late-stage privates, less common at early-stage startups where stock options dominate. RSUs are simpler than ISOs but lose the chance for capital-gains-on-spread treatment.
Example
- 100,000 RSUs vesting over 4 years at 25%/year. Each year, 25,000 units × current FMV = ordinary income that year, regardless of whether you sell the shares.