global Tax Restricted Stock vs. Restricted Stock Units (RSUs): Key Differences June 19, 2025 Equity-based compensation is becoming increasingly common in today's workforce, yet many lack an understanding of the awards they’ve been granted and their tax implications. In this blog, we’ll walk through the differences between Restricted Stock and Restricted Stock Units (RSUs), including how each is taxed and what happens when you leave the company. Does your employer offer stock compensation? Knowing the type of award and its impact on your overall financial picture is crucial. Let’s explore the differences between two common types of stock compensation that are often confused—restricted stock and restricted stock units (RSUs).Quick TakeawaysRestricted Stock = ownership at grant, but with restrictions; RSUs = no ownership until both vesting and distribution of stock occurs.Restricted Stock is more common at early-stage startups, while RSUs are typical at established companies.Restricted Stock generally allow for 83(b) elections to prepay tax upon grant so future appreciation is taxed at capital gain rates, while RSUs don’t.Both types encourage employee retention through vesting schedules.Vested shares stay with the employee, but unvested shares are forfeited if you leave the company.What is Restricted Stock?Restricted Stock are actual shares of stock that are granted to an employee or service provider at the time of the award, but come with restrictions. These shares are usually subject to a vesting schedule, meaning the employee earns full rights to the shares over time.Key Characteristics of Restricted Stock:Shares are issued at grant, with ownership rights (voting, dividends).Cannot be sold or transferred until vested.Often used by early-stage startups that want to offer ownership without using cash.May involve purchasing shares at a set price (typically low).What Are Restricted Stock Units (RSUs)?RSUs are a promise to deliver stock in the future, once the employee meets certain conditions—usually time-based vesting. Unlike Restricted Stock, the employee doesn’t receive any actual shares until those conditions are met.Key Characteristics of RSUs:No shares are issued at grant—just a right to receive stock later.No voting or dividend rights until vested.Common among larger or public companies.No purchase is required—stock is delivered upon vesting.Ownership and tax treatment of Restricted Stock and RSUs differ, which is why understanding the distinction is important.Comparison Chart: Restricted Stock vs. RSUsFeatureRestricted Stock Restricted Stock Units (RSUs)DefinitionGrants employees stock with restrictionsGrants employees a promise of stock in the futureCommonly Issued ByEarly-stage startups with limited cash flowEstablished, growing companiesGrant DifferencesShares are reserved at grant and may include voting/dividend rights before vestingShares are not reserved until vesting; no rights until stock is deliveredTaxationTaxed at vesting unless an 83(b) election is filed; capital gains possible if held 1+ year after vestingTaxed as ordinary income at vesting; capital gains apply only to future appreciationUnvested Shares at ExitCompany may repurchase unvested sharesUnvested shares are forfeited immediatelyVested Shares at ExitEmployee keeps vested sharesEmployee keeps vested shares “If you’ve received Restricted Stock, consider whether filing an 83(b) election makes sense. It allows future appreciation to be taxed at capital gain rates, provided the shares are held for at least one year. However, if the company's value decreases, you may end up paying taxes on a higher value than the stock is worth at vesting, creating an economic risk .” - Patrick Darcy FAQ: Restricted Stock and RSUsWhat is an 83(b) election and should I file one?An 83(b) election allows you to pay tax at the time of grant rather than when the stock vests. This can reduce your tax burden if the stock appreciates. It’s only available for Restricted Stock, not RSUs. The election must be filed with the IRS within 30 days of the grant dateDo I have to buy Restricted Stock?Sometimes the purchase of restricted stock is required, unlike RSUs, which do not require a purchase.Can RSUs have dividend equivalents?Yes, some companies offer dividend equivalents for RSUs, essentially cash payments mimicking dividends, even before the shares vest.What if I leave the company before vesting?In either case, unvested shares or units are forfeited. Always review your agreement to understand the terms and conditions.
