RSA vs RSU: Taxes, Vesting, and 83(b) Elections

The core difference between a restricted stock award and a restricted stock unit is timing of ownership. An RSA gives you real shares on the grant date, subject to the company’s right to take them back if you leave before vesting. An RSU is a contractual promise to deliver shares later, once you vest. That single distinction drives how you’re taxed, what rights you carry before vesting, and how much you stand to lose if things don’t work out. RSAs are the norm at very early-stage startups where shares are worth almost nothing. RSUs dominate at mature private companies and public ones, where the stock already has real value.

What You Actually Receive at Grant

With an RSA, the company issues shares in your name on day one. You might pay a nominal price for them or get them outright, but either way the shares sit in your account immediately. They’re “restricted” because the company keeps the right to repurchase any unvested portion, usually at whatever you originally paid, if you leave before the vesting schedule finishes. As each milestone passes, that clawback right expires and the shares become fully yours. A common structure vests 25% per year over four years.

Because those shares exist from grant day, you’re a legal shareholder from grant day. You can vote them on corporate matters, and most plans let you collect dividends on them even before they vest.¹ Some plans hold the dividends in escrow and release them at vesting, but the ownership treatment is the same.

An RSU is not stock. It’s a bookkeeping entry tracking the value of one share, paired with the company’s promise to deliver an actual share once you satisfy the vesting conditions.² Until settlement, you own nothing. No voting rights. No dividends as a shareholder. Some employers pay “dividend equivalents,” which are contractual bonus payments pegged to the actual dividend, but those are compensation and get taxed as wages when paid.³ Once your vesting conditions are met, the company settles the units by depositing shares into your brokerage account, and only then do you become a shareholder. The most common vesting structure is four years with a one-year cliff: nothing vests for the first twelve months, then shares release quarterly or annually over the remaining three years.

How Each One Is Taxed

Both awards are taxed as ordinary income by default. What differs is when that tax event lands, and whether you have any say in the timing.

RSAs and the 83(b) Election

Under Section 83 of the Internal Revenue Code, you owe ordinary income tax on RSAs when they vest. The taxable amount is the fair market value at vesting minus anything you paid.⁴ For a startup employee, that default is a trap. Suppose your shares are worth $0.10 each at grant and $15.00 at vesting three years later. You’d owe ordinary income tax on $14.90 per share on stock you probably can’t sell.

Filing a Section 83(b) election flips the timing. You pay ordinary income tax on the shares at grant instead of at vesting. If the stock is nearly worthless when granted, your immediate tax bill is tiny. All future appreciation then qualifies for capital gains treatment, which tops out at 20% for high earners versus ordinary income rates that can reach 37%.⁴ The election also starts your capital gains holding period at grant, so you may already qualify for long-term rates by the time you can sell.

The deadline is strict. You must submit the election to the IRS within 30 days of the grant date, using either a written statement or Form 15620, sent to the IRS service center where you file your return.⁵ Miss the deadline by a day and you’re locked into the default rule.

The risk that gets skipped in most guides: if you file the election, pay the tax, and then forfeit the shares because you leave before vesting, you don’t get the tax money back. The statute is explicit that “no deduction shall be allowed in respect of such forfeiture.”⁴ When shares are nearly worthless at grant, the downside is small. When they already have value, the 83(b) gamble gets serious. You could pay tax on $50,000 of stock, leave six months later, forfeit the unvested shares, and have no way to recover those taxes. The election is irrevocable once filed. Before making it, be honest about how likely you are to stay through vesting.

RSUs

RSUs follow a simpler path because there’s no property to tax until it arrives. When units vest and the company delivers shares, the full fair market value counts as ordinary income. No 83(b) election is available, because no property transfers at grant.⁴

The IRS treats RSU income as supplemental wages. For supplemental wages up to $1 million in a calendar year, employers withhold a flat 22% for federal income tax. Above $1 million, the rate jumps to 37%.⁶ The 22% flat rate often isn’t enough to cover your actual liability, especially if the RSU income pushes you into a higher bracket. A surprise bill at tax time is common.

Payroll taxes hit at vesting too:

Social Security at 6.2% on wages up to the annual cap of $184,500 for 2026. If your salary already exceeds the cap, no additional Social Security tax applies to RSU income.⁷
Medicare at 1.45% on all wages, no cap.
Additional Medicare at 0.9% on wages over $200,000 for single filers or $250,000 for joint filers.⁸

Most companies handle this through sell-to-cover. When shares vest, the company sells enough of them to cover the combined income and payroll withholding, then deposits the rest in your account. If 100 RSUs vest at $50 per share, you might see only 60 to 65 shares land in your brokerage after the tax shares are liquidated.

Capital Gains After You Own the Shares

Once you own the shares outright, whether through RSA vesting or RSU settlement, further price movement is a capital gain or loss. Hold for more than a year after full ownership and gains qualify for long-term rates of 0%, 15%, or 20%, depending on income.

The clock’s start date is where the two awards split. With an RSA and a timely 83(b) election, the holding period starts at grant. Without the election, or with RSUs, it starts at vesting. That gap can be the difference between long-term and short-term rates if you sell shortly after shares become yours.

What Happens If You Leave Before Vesting

With both awards, leaving before vesting typically costs you the unvested portion. The mechanics differ. For RSAs, the company exercises its repurchase right on the unvested shares, usually at the lower of your original purchase price or current fair market value; vested shares stay yours. For RSUs, unvested units simply disappear from your account because they were never shares to repurchase.

Many grant agreements distinguish voluntary departure from involuntary termination. A layoff or termination without cause may trigger partial acceleration or an extended settlement window. Being fired for cause or resigning voluntarily usually forfeits everything unvested. The exact terms live in your equity grant agreement, and reading that document before you need it is more useful than reading it on your way out.

Double-Trigger Vesting at Private Companies

RSUs at private companies often carry an extra condition that public-company employees never see: double-trigger vesting. Instead of shares delivering automatically when the time-based schedule finishes, private-company RSUs require two things. You have to satisfy the normal vesting schedule, and a liquidity event, typically an IPO or acquisition, has to occur.

If you vest over four years but the company doesn’t go public in that time, the vested RSUs sit there. No shares are delivered, and no taxable event happens. That’s an advantage in one sense: no tax on stock you can’t sell. But if the company never reaches a liquidity event within the award’s term, typically seven to ten years, you forfeit the RSUs regardless of how long you stayed.

This structure exists largely because of Section 409A of the Internal Revenue Code, which imposes harsh penalties on improperly deferred compensation. An RSU plan that violates 409A hits the employee with immediate income inclusion on all deferred compensation, plus a 20% penalty tax and interest.⁹ Tying settlement to a specific event helps companies avoid that trap.

What Happens in a Merger or Acquisition

When a company is acquired, your grant agreement and the deal terms together decide what happens to unvested awards. Two acceleration patterns dominate:

Single-trigger acceleration vests some or all unvested shares immediately on the change in control, regardless of whether you keep your job.
Double-trigger acceleration vests unvested shares only if the acquisition happens and you’re involuntarily terminated within a specified window afterward, often twelve months.¹⁰

Double-trigger has become more common because it protects the acquirer from having to vest everything at closing while still protecting employees who get let go after the deal. “Involuntary termination” in these agreements typically covers being fired without cause, a significant reduction in pay or responsibilities, or a forced relocation beyond a set distance.

For RSAs, acceleration lifts the repurchase restriction early. For RSUs, acceleration settles the units into shares sooner than the original schedule. Either way, the tax hit lands when the shares become unrestricted, so a large accelerated grant can create a concentrated income spike in one tax year.

Why Companies Pick One or the Other

RSAs make sense at very early-stage companies where the fair market value of common stock is near zero. Employees can receive shares with almost no tax at grant, file an 83(b) for pennies, and convert all future growth into capital gains. The math is compelling when shares are worth fractions of a cent but could someday be worth real money.

As a company matures and the stock price rises, RSAs become impractical. Granting shares worth $100 each would saddle the employee with an immediate income tax bill just for accepting the award, even with an 83(b) election. RSUs solve this by deferring the tax event until shares are delivered at vesting, when the employee has liquid stock that can be partially sold to cover the bill. That’s why virtually every large public technology company, and most public companies generally, use RSUs. The switch usually happens somewhere between a company’s late private stage and its IPO. Some companies use options as a middle step before landing on RSUs.

Side by Side

At grant: RSAs deliver actual shares. RSUs deliver a bookkeeping entry and a promise.
Rights before vesting: RSA holders vote and usually collect dividends. RSU holders have no ownership rights until settlement.²
Default tax timing: both taxed as ordinary income at vesting; only RSAs allow an 83(b) election to shift taxation to grant.⁴
Risk if you leave early: RSA holders forfeit unvested shares and any 83(b) taxes already paid. RSU holders forfeit unvested units but never paid tax on them.
Best suited for: RSAs at early-stage startups with low share prices; RSUs at mature or public companies.
Capital gains clock: starts at grant for RSAs with an 83(b); starts at vesting for RSUs and for RSAs without the election.

Neither award is inherently better. An RSA paired with a timely 83(b) offers the best tax outcome if the company succeeds and you stay through vesting, but it carries real downside if either condition fails. RSUs offer less tax optimization and eliminate the risk of paying taxes on shares you never actually receive. The right choice depends on the company’s stage, the share price at grant, and how confident you are that you’ll stick around.

1
U.S. Securities and Exchange Commission. Hewlett-Packard Company Grant Agreement
2
U.S. Securities and Exchange Commission. Form of Restricted Stock Unit Agreement
3
U.S. Securities and Exchange Commission. Terms of the Restricted Stock Units
4
Office of the Law Revision Counsel. 26 U.S. Code 83 – Property Transferred in Connection With Performance of Services
5
Internal Revenue Service. Update to Publication 525 for Section 83(b) Election
6
Internal Revenue Service. Publication 15, (Circular E), Employer’s Tax Guide
7
Social Security Administration. Contribution and Benefit Base
8
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
9
Office of the Law Revision Counsel. 26 U.S. Code 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans
10
U.S. Securities and Exchange Commission. Summary of RSU Change in Control Vesting Acceleration Provisions