What Are the Key Differences Between Restricted Stock Units and Employee Stock Options?

Key Points

  • RSUs are generally “set-and-forget”; stock options call for more hands-on decision-making.

  • RSU value equals units × current share price; option value hinges on share price minus the exercise price.

  • Options can be worth zero if the stock trades below the strike; RSUs still hold some value unless the company fails.

  • RSUs deliver shares automatically at vest; options require an affirmative exercise and, often, out-of-pocket cash.

  • RSU taxation is triggered at vesting; option taxation usually begins at exercise.

  • You control when (or whether) to exercise most options, giving you timing flexibility on taxes and cash flow.

  • Comparing pros and cons of each grant type helps you build a coordinated, tax-efficient wealth plan.

Few equity-based benefits create more excitement—​or anxiety—​than the day you receive a new grant. RSUs and employee stock options may look similar on your statement, yet the rules, risks, and tax impacts couldn’t be more different. By understanding how each one works, you can decide why, when, and how to turn company stock into lasting wealth that supports the life you want.

How Restricted Stock Units and Employee Stock Options Are Valued

RSUs derive their value solely from the market price of the shares. If you hold 1,000 RSUs and the stock trades at $45, your position is currently worth:

1,000 units × $45 = $45,000.

Stock options add leverage to the mix. Their current “in-the-money” value equals the difference between the market price and the strike price, multiplied by the number of options:

Option Value = Number of Options × (Current Price – Strike Price).

Assume you own 1,000 options with a $45 strike. If the share price sits at $75, the math is:

1,000 × ($75 – $45) = $30,000.

Should the share price fall below $45, those same options would be underwater—and temporarily worth nothing—while each RSU would still track the market price.

How You Receive Shares of Restricted Stock Versus Taking Ownership of Stock Options

RSUs typically vest on a schedule (annual, quarterly, or even monthly). When the vesting date arrives and the substantial risk of forfeiture lapses, shares land in your brokerage account automatically—no paperwork, no cash up front. From that moment you may hold, sell, donate, or transfer the stock as you see fit.

Options are different. Vesting only makes them exercisable; you must actively decide to buy the shares. To do so, you’ll pay the strike price in cash, with a sell-to-cover, or via a same-day sale. Once exercised, any resulting shares are yours to keep or sell, just like RSUs—​but you controlled the timing and the cash commitment.

How and When RSUs and Employee Stock Options Are Taxed

With RSUs, a taxable event occurs at vesting. The fair-market value of the vested shares counts as ordinary income, and employers usually withhold part of the shares (or cash proceeds) at the 22 % statutory rate (37 % on supplemental wages above $1 million). Additional tax may be due if the withholding doesn’t cover your actual bracket.

Options trigger tax only when exercised.

  • Non-Qualified Stock Options (NQSOs) – The spread between the strike and market price is treated as ordinary income and is subject to payroll taxes. Subsequent appreciation or loss is a capital gain or loss.

  • Incentive Stock Options (ISOs) – The spread can create an AMT adjustment if you exercise and hold. Satisfying the ISO holding periods (two years from grant and one year from exercise) converts any profit into long-term capital gain; selling sooner creates ordinary income on part of the gain.

Because you choose the exercise date, you also choose when the tax clock starts—an advantage unavailable with RSUs.

If You Have Equity Comp, Know the Difference

Ignoring the nuances between RSUs and options can lead to missed opportunities or surprise tax bills. A thoughtful plan weighs liquidity needs, tax brackets, concentration risk, and your long-term goals. At Falcon Wealth Planning, we blend tax-smart strategies with transparent, fee-only advice so you can decide whether to hold, sell, or strategically exercise—​and sleep better knowing each move is anchored to your personal financial roadmap.

All information provided is for educational purposes only and should not be construed as individualized investment, tax, or legal advice, or as a solicitation to buy or sell any security. Examples are hypothetical and for illustrative purposes; they do not predict future results. Investing involves risk, including possible loss of principal. Falcon provides advisory services only under a written agreement and only in jurisdictions where properly registered or exempt. Past performance is no guarantee of future returns. For additional disclosures, please see Falcon’s Form ADV, available at adviserinfo.sec.gov, or contact us directly.