Restricted stock units (RSUs) promise shares or cash after an award’s conditions are met. Stock options give you the right to buy shares at a fixed strike price. RSUs usually retain value whenever the stock has value; options need the stock price to exceed the strike to produce an exercise profit. Options also require a purchase payment and can create tax before you can sell.
The main differences
| Question | RSUs | Stock options |
|---|---|---|
| What do you receive? | Shares or cash after the award’s conditions are met | The right to buy shares at the strike price |
| Must you pay to acquire shares? | Usually no purchase price | Usually the strike price multiplied by shares |
| What happens if the price falls? | Award value falls with the stock | Exercising produces no profit below the strike; an unexpired option may still have future value |
| When does compensation tax arise? | Usually when shares are delivered, often at vesting | Usually exercise for NSOs; different regular-tax and AMT rules for ISOs |
| What limits your timing? | Vesting, settlement, and sale restrictions | Vesting, expiration, exercise windows, and sale restrictions |
A private-company RSU may require both service and a liquidity condition. A vested option may still be impossible to sell. Neither award guarantees cash on a date you choose.
Compare the same stock-price scenarios
Assume an award of 1,000 RSUs and a separate award of 1,000 options with a $20 strike. Ignore tax and assume all conditions are satisfied:
| Stock price | Gross RSU value | Option value above the purchase price |
|---|---|---|
| $10 | $10,000 | $0 |
| $20 | $20,000 | $0 |
| $50 | $50,000 | $30,000 |
At $50, exercising the options requires $20,000 to buy stock worth $50,000. The RSUs deliver $50,000 of value without that purchase cost. At $10, the options are underwater: exercising would mean paying $20 for a share currently worth $10.
This table shows value available on exercise, not an option’s full theoretical value before expiration. Time remaining and possible future price changes also matter. Employers can grant different numbers of each award, so compare the package at several prices instead of treating equal share counts as equal pay.
How are the taxes different?
RSUs: Delivered shares generally create wage income at their market value. That value becomes the starting basis for a later capital gain or loss. Withholding may differ from your final tax.
Nonqualified stock options (NSOs): For the usual employee option without a readily determinable market value at grant, the spread is compensation income at exercise. A later sale measures gain or loss from the resulting basis.
Incentive stock options (ISOs): Exercise generally creates no regular federal income tax, but exercising and holding can create an alternative minimum tax (AMT) adjustment. A qualifying sale requires more than two years from grant and more than one year from exercise. A sale before those periods can create ordinary income.
The IRS stock-option guide and Publication 525 explain these distinctions. Restricted stock is another award type; unlike an RSU, it can involve property eligible for a Section 83(b) election.
Which questions should you answer before acting?
- How much cash is required for the purchase and tax payments? A permitted cashless exercise can fund these from a sale, but an illiquid private-company grant may not offer that option.
- When can you actually sell, and what restrictions could delay a sale?
- How much of your household’s income and wealth already depends on this company?
- What happens if the stock falls by half or never becomes liquid?
- Which deadline applies if you leave your job?
If you are comparing job offers, request the vesting schedule, option strike price, current share valuation, expiration terms, and sale restrictions. A headline award value leaves out several of the facts that determine what you can actually spend.
Use the RSU withholding calculator for a compensation estimate, or the option exercise framework to compare exercise timing. Keep your grant agreement and current tax records beside any projection.