Key takeaways
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When companies offer stock to employees as part of their compensation, it often comes in the form of either RSAs (Restricted Stock Awards) or RSUs (Restricted Stock Units). While both give you a chance to own a piece of the company, they work differently.
Here’s a simple breakdown of how they compare…
What Is an RSA?
A Restricted Stock Award (RSA) means you receive company stock upfront, but it comes with restrictions.
Typically, you must stay with the company for a certain period (vesting period) before you fully own the shares. If you leave before that period ends, you may have to forfeit the unvested shares.
- Taxation of RSAs: You can choose to pay taxes right when you receive the shares (using a Section 83(b) election), based on the stock’s value at that time. If you don’t make this election, you’ll pay taxes on the shares’ value when they vest, which could be higher.
- Ownership of RSAs: You own the shares right away, even if they’re restricted, so you can vote and earn dividends on them.
What Is an RSU?
A Restricted Stock Unit (RSU) is a promise to give you company stock in the future.
You don’t own the shares until they vest. When they do vest, you receive the stock, and it’s taxed as income based on the value at that time.
- Taxation of RSUs: You are taxed when the shares vest. The stock’s value at that moment is treated as income, and you pay taxes accordingly.
- Ownership of RSUs: You don’t own anything until the shares vest. After vesting, the shares are yours, and you can sell or hold them.
Understanding RSU Double-Trigger Vesting: RSUs typically have double-trigger vesting, requiring two distinct events to occur before an employee has ownership of their granted shares:
- Vesting Period: The first “trigger” involves meeting the vesting schedule, a set timeframe, often 3 to 4 years, during which the employee must remain with the company to earn their RSUs.
- Liquidity Event: The second “trigger” is a change in corporate control event, such as an Initial Public Offering (IPO), a tender offer, or a company acquisition.
In addition to RSAs and RSUs, many startups offer other stock-based compensation like ISOs and NSOs. To learn more, see our comprehensive guide: Equity Compensation: A Guide for Founders and Employees.
A Harness Tax Advisor Can Help You Navigate RSAs and RSUs
If you need help navigating tax questions around equity compensation, business ownership, self-employment, or any other unique tax situation, working with a Harness Tax Advisor can help you target your goal of reducing tax liabilities. From comprehensive planning to tax preparation, our experts are here every step of the way. Get started with Harness today.
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