RSUs and Stock Options: A Tax-Aware Playbook
Equity compensation can be the largest single wealth-building event in a career. It can also be the largest wealth-destruction event - usually through concentration risk, tax miscalculation, and the tendency to believe in your employer's stock more than the math justifies.
RSUs: The Most Common and Most Misunderstood
The Concentration Problem
Your employment income, bonus, and career trajectory already depend on your employer. Adding your investment portfolio means your financial life is triply correlated to one company. This is uncompensated risk.
The bottom line
A common approach to managing that concentration: sell RSUs as they vest, or hold a defined percentage (5-10% of net worth) and sell the excess mechanically.
Stock Options: ISO vs. NSO
- NSOs (Non-Qualified): At exercise, the spread is taxed as ordinary income. Straightforward.
- ISOs (Incentive): At exercise, no ordinary income tax - but the spread is added to your AMT calculation. Never exercise ISOs and hold to December without understanding your current AMT position.
The Simple Policy
Most equity compensation disasters share a common theme: the employee held concentrated stock hoping for more upside. Write a sell-at-vest policy down. Apply it mechanically. Revisit only annually.
What would you do?
Priya receives 500 RSUs vesting at $180/share ($90,000 value at vest). She's in the 35% federal bracket.
Your Move
Find your next vesting date and the RSUs scheduled to vest. Calculate the tax withholding at the 22% supplemental rate vs. your actual marginal rate - the shortfall will create an April tax bill unless you set aside cash.
Sources
- Internal Revenue Service, Publication 525
Taxable and Nontaxable Income (equity compensation: RSUs and stock options)
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026