RSUs, stock options and vesting: how equity pay works in a job offer

An equity grant only helps you compare offers once you turn it into a yearly dollar figure you can set next to base salary. This guide shows you how to do that for restricted stock units (RSUs) and stock options, how vesting and IRS tax rules work, and what to check before you sign.

Quick reference: the three kinds of equity you're most likely to see

The tax details below come from IRS Publication 525 (the 2025 edition, for 2025 returns, which was the newest edition on the IRS site when this was written) and IRS Topic no. 427, which the IRS last updated on 24-Sep-2026.

Restricted stock units vs stock options

RSUs: shares you receive later

An RSU is a promise that the company will give you a share (or sometimes its cash value) once you meet the vesting conditions, usually staying employed for a set time. You pay nothing for it. If the price falls, it's worth less, but still worth something unless the shares become worthless.

Many large public companies use RSUs as their main equity tool. Amazon, for example, says in its annual report for 2025 that RSUs are its primary form of equity pay.

Stock options: the right to buy at a fixed price

A stock option lets you buy shares at a set price, called the exercise or strike price, for a set period. The option only has value if the shares are worth more than the strike price. If the shares never rise above it, the option is worth nothing, even though it looked good on paper.

The IRS splits options into two families:

• Statutory options: incentive stock options (ISOs) and options granted under an employee stock purchase plan (ESPP).
• Nonstatutory options (NSOs): any option that isn't granted under an ISO plan or an ESPP.

Your grant agreement should say which kind you have, and Publication 525 notes that your employer can tell you. The type matters a lot for tax.

Vesting schedules and cliffs

Vesting is the timetable for when equity becomes yours. Until it vests, you generally can't keep it if you leave. A cliff is a waiting period at the start: nothing vests until you reach it, and then a chunk vests all at once.

A common pattern (hypothetical example)

Say an offer includes RSUs that vest over four years with a one-year cliff, then quarterly:

The cliff is the part people underestimate. In this example, if you left a month before your first anniversary, you'd walk away with nothing.

A real example from a company filing

Schedules vary, so read the company's own description. In its quarterly report for the period ending March 31, 2026, Amazon says employees vest in RSUs over a service period of generally between two and five years. It also says most outstanding RSUs are granted at hire or in Q2 as part of the annual pay review, and that they mostly vest quarterly in the relevant compensation year.

Other patterns you may see in grant agreements:

• Even vesting: the same amount each month, quarter or year.
• Back-weighted vesting: less in early years and more later. This lowers your early-year pay if you compare offers on a yearly basis.
• Performance vesting: units vest only if the company or you hit targets. Treat these as less certain than time-based units.
• Refresh grants: new grants given in later years, often at review time. Don't count these unless they're in writing.

How to put an annual value on a grant

You want one number per year that you can add to base salary, plus a sense of how much that number could swing.

RSUs at a public company

1. Find the number of units and the vesting schedule in the offer or grant agreement.
2. Work out how many units vest in each year. With even four-year vesting, that's a quarter of the grant a year.
3. Multiply that year's units by a share price. Use a recent market price, not the recruiter's optimistic one.
4. Repeat at a lower and a higher price to see the range.

Example (hypothetical): An offer includes 400 RSUs vesting evenly over four years with a one-year cliff, so 100 units vest each year. Fill in a table like this with the company's current share price:

Then set each row against a competing offer. If a cash-only offer beats your "price falls" row, the equity offer wins only if the stock holds up and you stay past the cliff.

Stock options

Options need two extra steps: subtract the strike price, and count what you'd have to pay to exercise. The three formulas:

• Cost to exercise = number of options × strike price. This is cash you pay to turn options into shares.
• Spread per share = share value minus strike price. If this is zero or negative, the options are worth nothing right now.
• Paper value = spread per share × number of options. Divide by the vesting years for a rough yearly figure, before tax.

Example (hypothetical): A startup offers options vesting over four years. If the shares are later worth exactly the strike price, your profit is zero. If they're worth three times the strike price, your spread is twice the strike on every share. If the company fails, the options are worth nothing, and you lose nothing extra unless you've already paid to exercise.

Also ask how many shares the company has in total on a fully diluted basis, meaning counting all options and convertible securities. Divide your options by that number to get your ownership share. A big option count can still be a tiny slice.

A practical rule: when deciding whether the cash in an offer is enough to live on, count private-company options at a heavy discount, or at zero.

How RSUs and options are taxed

This section summarizes IRS Topic no. 427 and Publication 525 (2025). It explains how the rules work, not what you'll owe. Your result depends on your grant terms, timing and the rest of your return.

RSUs and restricted stock

Publication 525 starts from a simple rule: what you receive for your work is generally income, including stock. For property that's restricted, meaning you could lose it if you leave, you generally don't include its value until it becomes "substantially vested." At that point, you include its fair market value minus anything you paid.

IRS example: Publication 525 describes an employee who buys 100 shares from their employer at $10 each, with a 5-year risk of forfeiture. Nothing is taxed at purchase. When the restriction ends, the shares are worth $200 each, so the employee includes $19,000 in income: the value minus what they paid. RSUs follow the same logic at vesting, except you usually paid nothing, so the full value of the shares you receive counts as pay. That's true even if you don't sell a single share.

Two practical points:

• Employers often hold back some shares to cover withholding. Withholding is an estimate and may not match your actual tax, so check it with a tax professional.
• The IRS warns that the cost basis shown on your Form 1099-B may not include amounts already taxed as pay. Publication 525 says it's your job to adjust it on Form 8949. If you skip this, you could pay tax twice on the same value.

Nonstatutory stock options (NSOs)

Topic 427 explains that most NSOs don't have a readily determinable value when granted, so getting the option usually isn't taxable. When you exercise, the spread between the share value and what you pay counts as income. Publication 525 says your employer should report that spread on your Form W-2 in box 12 with code V.

Example (hypothetical): You exercise NSOs when the share value is well above your strike price. You pay the strike price, and the spread counts as pay that year, even if you keep the shares. Publication 525 says your basis is what you paid plus the amount taxed as income. So if you later sell at a higher price, only the rise above the value at exercise is capital gain.

Incentive stock options (ISOs)

ISOs get friendlier rules, with conditions attached:

• No regular income tax at grant or exercise. But for alternative minimum tax, the spread is an adjustment you may have to report on Form 6251. A big exercise can trigger AMT even though you haven't sold anything.
• Holding periods. To have your whole gain treated as capital gain, Publication 525 says you must not sell until the later of 2 years after the grant date and 1 year after the shares were transferred to you.
• Selling early. If you sell before that, the gain up to the spread at exercise is ordinary income, reported as wages, and any extra gain is capital gain.
• Employment rule. You must have been an employee of the company (or a related company) from the grant date until 3 months before you exercise (1 year if you're disabled). If you don't meet this, the option is treated as an NSO.
• Paperwork. After you exercise, the company should send you Form 3921.

IRS example: In Publication 525, an employee holds an ISO for 100 shares at $9 a share. They exercise when the stock trades at $14, and their rights first become transferable a few weeks later, when it's at $16. There's no regular income at exercise, but they include $700 as an AMT adjustment: the $1,600 value when the shares became transferable minus the $900 option price. If the shares are later sold after both holding periods, the gain is capital gain. If they're sold too early, part of it becomes ordinary income.

Two elections worth knowing about

• Section 83(b) choice. If you receive actual restricted shares (for example, startup stock that vests over time), Publication 525 lets you choose to be taxed on their value when you receive them rather than when they vest. You must file within 30 days after the transfer, you can't undo it without IRS consent, and it isn't available for statutory or nonstatutory options.
• Section 83(i) deferral. Certain employees of private companies can elect to defer tax on qualifying stock from options or RSUs for up to 5 years. The company must have a written plan that gives options or RSUs to at least 80% of its US employees, and some owners and top officers are excluded. Ask HR whether your company's plan qualifies; many don't.

Private vs public company equity

With private-company options, there's a cash trap. You may have to pay the strike price, and with NSOs pay tax on the spread, for shares you can't yet sell.

Private companies usually rely on an SEC exemption called Rule 701 to give equity to employees. Under that rule, the company must give you a copy of the plan or contract. If it sells more than $10 million of securities this way in any 12-month period, it must also give you more: a summary of the plan's terms, information about the risks, and financial statements dated no more than 180 days before the sale. If you're offered equity at a fast-growing startup, ask for these documents. You may be entitled to them.

What happens to unvested equity when you leave

Vesting conditions are usually tied to continued service. Publication 525 describes this as a "substantial risk of forfeiture," meaning your right to keep the stock depends on future work. In practice:

• Unvested RSUs and options are generally forfeited when you leave. Some plans make exceptions for death, disability, retirement or a company sale ("acceleration"). Only your plan and grant agreement can tell you which apply.
• Vested RSUs are already your shares.
• Vested options usually have to be exercised within a set window after you leave, or they expire. The window is in your grant agreement.
• ISOs exercised more than 3 months after you leave (or 1 year if you're disabled) don't meet the IRS employment requirement, so they're taxed as NSOs.

If you're timing a move, check your next vesting date. Leaving weeks before a cliff or big tranche can cost real money, and a new employer may offset it with a sign-on bonus or grant if you ask.

Where companies disclose their equity plans

Public companies have to describe their equity programs in SEC filings, which you can search for free on EDGAR Full Text Search. Here's where to look:

• Annual report (Form 10-K). The notes to the financial statements usually include a stock-based compensation note with vesting terms, units granted and forfeited, and the average grant-date value. The SEC's guide to reading a 10-K explains where the financial statements section sits.
• Quarterly reports (Form 10-Q). These give updated equity activity. Amazon's report for the quarter ended March 31, 2026, for example, lists 222.5 million unvested RSUs outstanding at the end of 2025, with a weighted-average grant-date value of $178 per share. That's what the units were valued at when granted, not what they're worth today.
• Proxy statement (DEF 14A). This is where shareholders vote on new or expanded equity plans, and where executive grants are described in detail.
• Form S-8. This registers shares for employee plans and often includes the plan document as an exhibit.

In EDGAR Full Text Search, try the company name plus "restricted stock units" and "vest," filtered to 10-K or 10-Q. For private companies, rely on your grant agreement, the plan document and any Rule 701 disclosures.

How to negotiate the equity part of an offer

Get the facts first, then ask. Questions to ask before you negotiate:

• "How many units or options is this, and what share price or valuation did you use to describe their value?"
• "What's the vesting schedule, and is there a cliff?"
• "For options: what's the strike price, the post-termination exercise window, and the total fully diluted share count?"
• "Are these ISOs or NSOs?"
• "How do refresh grants work, and are they guaranteed?"

Scripts you could use:

• "I'm excited about this role. At today's share price, the equity works out to about [your yearly figure] a year, which puts the total below my other offer. Could you increase the grant or the base so the yearly total gets closer to [your target]?"
• "I'd be leaving about [amount] of unvested stock at my current job. Is there room for a sign-on grant or bonus to bridge that?"
• "Since there's a one-year cliff, could part of the first year come as a cash sign-on bonus instead?"

Fill in the brackets with your own numbers. If a recruiter quotes equity as a dollar value, ask what share price they used, and base your counter on your own conservative estimate. A posted salary range usually describes base pay, so ask about equity separately. For more on how named employers pay, see our company pay coverage and our negotiation guides.

What to do next

• Read your grant agreement and the plan document before you sign. Confirm the type (RSU, ISO or NSO), the number, the vesting schedule, the cliff and what happens if you leave or the company is sold.
• Build a three-scenario table (price down, flat, up) and compare yearly totals, not four-year headlines.
• Talk to a tax professional before exercising options, making an 83(b) election, or selling shares soon after vesting. The rules in Publication 525 have traps, especially AMT and basis reporting.