RSUs, Vesting, and the Equity You Don’t Really Own Yet

You got RSUs. Congrats! Sort of.

They sound like free money, but they’re not. RSUs, which stands for restricted stock units, are part of the compensation you’ve earned through your work. And unlocking their value requires staying employed, hitting milestones, and making smart decisions when it’s time to sell.

This guide will break it all down: how RSUs work, what RSU vesting really means, how RSUs are taxed, and what smart employees do to turn them into actual wealth.

Let’s get into it.

What are RSUs?

Restricted Stock Units are a form of equity compensation often included in salary packages at tech companies and startups. If you’re wondering what is an RSU, think of it this way:

An RSU is a promise. Your company is saying: We’ll give you stock. Later. You don’t need to buy it (unlike stock options), but you also don’t own it until certain conditions are met.

Think of RSUs as an IOU for equity: We’ll give you the shares eventually, if you stick around and we hit certain milestones.

Vesting definition: The schedule by which you own ownership of employer-provided stock, options, or retirement contributions.

How RSUs work (Including RSU vesting)

Restricted Stock Units might feel like magic numbers on a dashboard, but there’s a clear sequence to how they work:

1. Grant Date: This is when the company says, “We’re giving you RSUs.” You don’t get anything yet, it’s just a promise. Think of it like being handed a golden ticket... that doesn’t activate until later.

2. Vesting: Your RSUs become earned over time. This could be a simple monthly schedule, or it might require you to stay employed through a liquidity event (a.k.a. double-trigger vesting).

3. Settlement: This is when the shares actually hit your account. It’s also the moment they become taxable income, whether you sell them or not. If your company stock is worth $100/share when 1,000 RSUs settle, you’re looking at $100,000 in taxable income.

RSU Vesting Types: Time-Based vs. Double-Trigger

Single-trigger RSUs vest over time. As you continue working at the company, you pass pre-defined vesting dates and earn shares accordingly.

Double-trigger RSUs (common at private companies) require two things:

• You hit your time-based vesting
• The company has a qualifying liquidity event, most commonly going public or getting acquired. Some companies also run private liquidity events, like tender offers, that let employees sell shares before an IPO.

So yes, you could hit your 4-year vesting period and still own nothing until the company exits. That’s the fine print of your RSU agreement.

Some RSU plans even include a “must be employed at time of exit” clause. Meaning: even fully time-vested RSUs could vanish if you leave too soon.

Until all triggers are met, your equity isn't really yours.

What happens if you leave

Let’s say your RSUs are 75% vested and your startup’s still private. What happens if you walk?

If you have single-trigger RSUs, you keep what’s vested. If you have double-trigger RSUs, you might not be able to keep them unless you’re still employed when the second trigger (like an IPO) happens.

This is why understanding your vesting requirements, vesting rights, and your company’s RSU plan matters.

Read your RSU grant closely. Pay attention to your vesting information and exit clauses.

RSU taxes: What is RSU income?

RSUs aren’t taxed when granted. But once they settle, meaning the shares officially transfer to you, they become taxable income.

You’ll owe ordinary income tax on the fair market value (FMV) of the shares at the time of settlement. Even if you don’t sell them.

Here’s an example:

Your RSUs vest and settle when your company’s shares are worth $100 each. You get 1,000 shares = $100,000 in income.

Unless your company withholds enough tax, you could end up with a surprise bill come April.

Sell-to-Cover

Many companies use a sell-to-cover model—automatically selling a portion of your RSU shares to cover the tax bill.

Vested shares aren’t tax-free. The moment they settle, they’re treated as income, whether or not you sell them.

Should you hold or sell your RSUs?

If your company is public, you can typically sell vested RSUs right away (assuming it’s an open trading window). But should you?

Ask yourself:

• Do I need liquidity now?
• How bullish am I on the company?
• Am I too concentrated in one stock?

Holding RSUs can be a bet on the future, but diversification might be smarter.

If your company is private, you can’t sell unless:

• There’s a liquidity event (IPO, acquisition)
• The company approves a secondary sale (you find a buyer privately), or runs a tender offer (a company-organized event where you can sell shares to the company or approved investors at a fixed price).