So RSUs…What’s that mean to You?
Restricted Stock Units (RSUs): What Tech Professionals Need to Know
If you work in tech, there’s a good chance RSUs are part of your compensation package—or they will be. Restricted Stock Units have become a core component of how companies, especially startups and public tech firms, attract and retain top talent. But while they can significantly boost your wealth, RSUs also bring complexity, especially around taxation and liquidity.
At Fortitude Financial, we specialize in helping tech professionals navigate the financial maze that RSUs present. Whether you’re joining a pre-IPO startup, facing a tender offer, your company is about to go public, or is already public, understanding how RSUs work is essential.
What Are RSUs?
RSUs, or Restricted Stock Units, are a form of equity compensation. They represent a company’s promise to give you shares of its stock—not immediately, but over time. This timeline is called a vesting schedule.
You don’t own RSUs when they’re granted. You own them as they vest, typically based on how long you stay with the company (time-based vesting) and, in some cases, company performance (performance-based vesting).
Once your RSUs vest, they become actual shares. At that point, they’re considered income—and that’s when the IRS gets involved.
How RSUs Work
Let’s say you’re granted 4,000 RSUs when you join a tech company. The grant might vest over four years with a one-year cliff, then monthly or quarterly afterward:
Year 1: 25% (1,000 shares) vest on your one-year anniversary
Months 13–48: The remaining 3,000 vest monthly over 36 months
Until they vest, those shares aren’t yours. If you leave before the one-year cliff, you walk away with nothing.
Once RSUs vest, they convert to company stock. If your company is public, the shares typically appear in your brokerage account. If it’s private, things get more complicated (more on that below).
Tax Implications of RSUs
1. When RSUs Vest
On the day your RSUs vest, the fair market value (FMV) of the shares is treated as ordinary income.
Example:
1,000 RSUs vest
FMV per share = $50
$50,000 is added to your W-2 income
This triggers income tax (federal + state + payroll). Most companies will withhold shares to cover these taxes—a process called sell-to-cover. So, you might see fewer shares hit your account than what actually vested.
For federal taxes, at most companies, the shares withheld are enough to cover the standard federal supplemental income withholding rate of 22%. Unless the amount that vests is more than $1,000,000, then 37% will be withheld.
2. When You Sell the Shares
Once vested, you can sell the shares anytime (unless subject to lock-up or blackout windows). When you sell, you’ll owe capital gains tax on any increase in value:
If you sell immediately after vesting, the gain or loss is minimal.
If you hold for over a year, any appreciation qualifies for the lower long-term capital gains rate.
3. The “Double Taxation” Myth
A common misconception is that RSUs are taxed twice—once at vesting and again when sold. That’s not true. You’re taxed as ordinary income when they vest, and then only on any additional gains when you sell.
However, there are some things to make sure you pay attention to when you file your tax return, so that you don't pay double taxation. Here’s one of our earlier blog posts about how to complete your taxes when you have RSU sales: How to File Taxes on RSU Sales: A Step-by-Step Guide
Private Company RSUs: The Liquidity Challenge
If your employer is private, vested RSUs may still be illiquid—you can’t sell them until an exit event (such as an IPO or acquisition). Unfortunately, you may still owe taxes on the paper value of shares you can’t sell. This can create a cash flow problem—you owe tax on income you haven’t received in cash.
That’s where strategic tax and cash flow planning become critical.
Scenarios That Complicate RSUs
1. Tender Offers
A tender offer occurs when investors—or the company itself—offer to buy back employee shares. This can create a rare liquidity event for private companies.
Key considerations:
Should you sell vested RSUs now or hold for a higher potential IPO price?
What are the tax implications of selling?
How does selling (or holding) align with your long-term goals?
We help clients analyze tender offers within the context of their cash flow, tax bracket, and career trajectory.
2. IPO (Initial Public Offering)
When your company goes public, you suddenly have real liquidity—but also new complexities like lock-up periods, volatility, and increased tax exposure.
We help clients navigate:
Tax strategies to manage income spikes from vesting and sales
Timing sales for diversification and tax efficiency
Charitable giving strategies (e.g., donating appreciated shares)
Managing AMT exposure if you also hold stock options
3. Acquisition Events
If your company is acquired, your RSUs may:
Accelerate (vest immediately),
Convert into shares of the acquiring company, or
Be canceled and replaced with cash (sometimes a mix of all three).
Each scenario carries unique tax and planning implications. We guide you through:
Forecasting the impact on your net worth
Estimating withholding and taxes
Rebalancing your portfolio if you become overweight in company stock
How Fortitude Financial Helps Tech Professionals with RSUs
We don’t just explain RSUs—we integrate them into your broader financial strategy.
Our services include:
Tax-Aware Planning
Project tax liabilities before RSUs vest
Model sales scenarios to reduce tax drag
Assist you with estimated tax payments or coordinate with your CPA if we’re not preparing the returns.
Cash Flow Strategy
Plan for cash needed to cover taxes on illiquid shares
Navigate liquidity events like tender offers
Avoid surprises during tax season
Equity Compensation Optimization
Integrate RSUs with ISOs and NSOs
Plan around vesting cliffs, job changes, and exit events
Reduce concentration risk in employer stock
Exit Event Readiness
Manage IPO and acquisition scenarios with tax modeling
Create a diversification plan after lock-up periods
Implement charitable giving through donor-advised funds
Ongoing Wealth Management
Transition from stock-heavy wealth to diversified investments
Build a long-term, risk-adjusted portfolio
Align equity windfalls with goals like buying a home or early retirement
Common RSU Mistakes We Help Avoid
Ignoring taxes: Waiting until April to deal with vesting taxes can lead to penalties.
Holding too long: Overconcentration in company stock can be risky.
Selling too early: Selling immediately can forgo potential growth.
Not planning for illiquidity: Private RSUs can strain cash flow if not planned for.
Overreliance on employer stock: When your job, income, and wealth depend on one company, diversification is key.
Final Thoughts: RSUs Are an Opportunity—With Strings Attached
RSUs can be a powerful driver of wealth, especially in the tech industry. But they’re not “free money.” They’re complex, taxable, and tied to your employer’s success.
At Fortitude Financial, we help you make the most of your RSUs—not just today, but for the long game.
If you’re ready to turn your equity into a comprehensive financial strategy, we’re here to guide you every step of the way.
Feraud Calixte, J.D., CFP®
