# RSUs vs. Stock Options: What You Actually Own
Equity compensation sounds simple: work for the company, own a piece of it. In practice, RSUs and stock options are distinct instruments with meaningfully different economics, tax treatment, and decision requirements.
RSUs (Restricted Stock Units)
An RSU is a promise to deliver shares on a future date (or dates), contingent on your continued employment. When an RSU vests, you receive actual shares — or their cash equivalent if the company settles in cash.
**Tax:** RSU income is recognized at vesting, at ordinary income rates. The company typically withholds shares to cover taxes — so you receive fewer shares than the full grant, but you owe no additional taxes at vesting (assuming your marginal rate is covered by withholding). When you later sell the shares, any gain from the vest price is taxed at capital gains rates.
**Key feature:** RSUs have value as long as the stock is worth anything above zero. They do not require you to pay to exercise. This makes RSUs lower-risk than options.
Stock Options
An option gives you the right (but not obligation) to purchase shares at a fixed price — the "strike price" or "exercise price" — set at grant date. If the stock price rises above the strike, you can buy at the lower strike price and either hold or sell at market value.
**NSO (Non-Qualified Stock Options):** The spread between strike and market price at exercise is ordinary income. Most commonly issued to employees and advisors.
**ISO (Incentive Stock Options):** If held long enough (2 years from grant, 1 year from exercise), gains qualify for long-term capital gains rates. ISOs can trigger AMT. Typically granted only to employees.
**Key feature:** Options are worthless if the stock price is below the strike price ("underwater"). They have zero value at that point — unlike RSUs.
Interactive Model
RSU vs. Stock Options Value Comparison
Compare after-tax outcomes across equity types and price scenarios.
RSUs (10,000 shares)
At exit price $40/share
$272,000
Gross value: $400,000
Tax at vesting (32%): -$128,000
NSOs (strike $20)
At exit price $40/share
$136,000
Spread: $200,000
Ordinary income tax: -$64,000
After-tax value across price scenarios
NSO model assumes exercise-and-sell at exit. AMT on ISO exercise not modeled. Private company equity subject to additional risks. Consult a tax advisor for significant equity events.
The decision framework at exercise
**When to exercise options:** - Early exercise (83(b) election): exercise immediately at grant, start the capital gains clock early. Maximum risk (you buy shares in a company that may fail) with maximum tax upside. - Exercise as you go: exercise a portion as you vest, managing the cash requirement and AMT exposure. - Exercise at liquidity: wait until IPO or secondary market — maximize clarity on value, but lose capital gains treatment on spreads taxed at ordinary income.
**When to sell RSUs after vesting:** Holding RSUs after they vest is equivalent to making a new investment decision to buy your company's stock at market price. If you would not buy that stock with fresh cash, you should not hold the vested shares. Concentrated employer stock is a significant risk.
Private vs. public company equity
Private company equity — options or RSUs — cannot be sold until a liquidity event (IPO, acquisition, secondary market sale). The 90-day post-departure exercise window on options is a critical deadline: if you leave before a liquidity event, you have 90 days to exercise any vested options or forfeit them. Early-stage companies often have high strike prices relative to valuations that never materialize.
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*Related: [Total compensation calculator](./total-compensation-calculator) — equity is one component of a full offer comparison. [Side income taxes](./side-income-taxes) — equity events can significantly affect your tax year.*