RSUs Explained: Vesting, Taxes, and What to Do When They Hit

If your compensation includes RSUs, you’re in good company across Austin’s tech and professional services sectors. Restricted stock units are one of the most common forms of equity pay, and they generate some of the most consistent surprises at tax time. Getting ahead of how vesting and taxation work, before the shares arrive, puts you in a position to plan rather than react.

What RSUs Actually Are

RSUs are a promise from your employer to deliver company stock at a future date, provided you’re still employed and any other conditions in your grant agreement are met. You don’t own shares when the grant is issued. It’s a commitment, not a current asset.

Stock options work differently: they give you the right to buy shares at a fixed price. RSUs are simpler. They have value as long as the stock is worth anything at all, which makes the tax mechanics more predictable but no less significant when vesting day arrives.

How Vesting Schedules Work

Most RSU grants vest over time. A four-year schedule with a one-year cliff is common: nothing vests in the first year, then 25% vests at the one-year mark, and the rest comes monthly or quarterly over the following three years.

Some companies use performance-based vesting, where shares release when specific business or individual targets are hit. Some grant agreements have acceleration provisions that trigger on an acquisition or a layoff.

Read your grant agreement. The specifics of your vesting schedule, what happens if you leave, and whether any acceleration applies all live in that document. Most people never read it carefully enough.

The Tax Event Nobody Plans For

When your RSUs vest, the value of the shares on that day is taxable as ordinary income. Your employer withholds taxes automatically, but the default withholding rate is often 22%, regardless of your actual marginal rate.

If you’re in the 32% or 37% federal bracket, you may owe significantly more than what was withheld. Add state income tax if applicable, and the gap can be substantial after a large vesting event.

Your employer reports the vested RSU value on your W-2. That income is fully taxable in the year of vesting, and the bill follows you to April whether you planned for it or not. If a major vesting event is coming, get ahead of it with a tax professional and run the numbers on estimated payments.

What Happens After You Hold the Shares

Once your RSUs vest and you own the shares, any subsequent change in value is a capital gain or loss relative to the vesting price.

Sell immediately and the capital gain is minimal. Hold longer and the shares rise in value before you sell, and you’ll owe capital gains tax on the appreciation. Hold for more than a year after vesting and you qualify for long-term capital gains rates, which are lower than ordinary income rates for most taxpayers.

The decision to hold or sell involves your tax situation, your view of the stock, and your broader financial picture. Better to think it through deliberately than let inertia decide for you.

Concentration Risk and Diversification

Here’s the question that comes after the tax question: what do you do with the shares once you own them?

If your income comes from your employer, your 401(k) includes company stock, and your RSUs are also in company stock, a meaningful portion of your net worth is tied to one company’s performance. That’s concentration risk. A single stock, even a strong one, adds volatility to your financial life that a diversified portfolio wouldn’t carry.

There’s no universal rule about when to sell vested RSUs. Having a framework, built around your tax situation, your other assets, your goals, and your timeline, puts you in control of the decision. Letting inertia decide is also a choice, and often not the right one.

Building a Strategy Around Your Equity Comp

RSUs are most valuable when they fit into a coordinated financial strategy. That means planning for major vesting events before they hit, estimating tax liability in advance, thinking clearly about concentration, and integrating the after-tax value into your broader savings and investment picture.

Austin Wealth Management works with Austin professionals navigating equity compensation. If you have RSUs, ISOs, ESPPs, or other forms of equity pay and want a coordinated strategy, schedule a consultation with Austin Wealth Management.

This article is provided by Austin Wealth Management for general educational purposes only. It is not financial, investment, tax or legal advice, it does not consider your individual circumstances, and it does not create an advisory relationship. Austin Wealth Management provides advice and services only under a signed advisory agreement, and the terms of that agreement govern. Rules and limits change, so information here may not be current. Consult a qualified financial professional before making financial decisions.