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. They also require a purchase payment and can create tax before you can sell.
The main differences
| Question | RSUs | Stock options |
|---|---|---|
| What you get | Shares or cash once conditions are met | Right to buy at the strike |
| Cost to acquire | Usually none | Strike price × shares |
| If the price falls | Value falls with the stock | No profit below strike; may recover before expiry |
| When it’s taxed | Usually at delivery, often vesting | NSOs: usually exercise; ISOs differ (AMT) |
| Timing limits | Vesting, settlement, sale rules | Vesting, expiration, exercise windows, sale rules |
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 | RSU value | Option value |
|---|---|---|
| $10 | $10,000 | $0 |
| $20 | $20,000 | $0 |
| $50 | $50,000 | $30,000 |
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.
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?
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.
