Equity Compensation 101: RSUs, Options, and What They're Worth
Equity compensation is one of the most misunderstood parts of a job offer. A "$300,000 RSU grant" isn't $300,000 in your pocket — taxes, vesting, and stock price movement all affect what you actually receive. Here's how each type works, when you owe taxes, and how to evaluate these offers honestly.
RSUs (Restricted Stock Units) — the most common equity type
An RSU is a promise to give you company stock when it vests, subject to you still being employed. RSUs are the dominant equity form at public companies in 2026.
How RSU taxation works
On the vesting date, the fair market value of vested shares is treated as ordinary income — taxed at your marginal rate (up to 37% federal + state). Most companies withhold at a flat 22% federal rate for supplemental income, but if you're in a higher bracket, you'll owe more at tax time.
Example: 1,000 RSUs vest at a stock price of $50/share = $50,000 of ordinary income. At 24% tax rate: $12,000 in taxes. You net $38,000 worth of stock (before state taxes).
After vesting, if you hold the stock and it appreciates, the gain is capital gains. If you hold more than a year: long-term capital gains rates (0–23.8%). Sell immediately: no additional gain.
Stock options: ISOs and NSOs
| ISOs (Incentive Stock Options) | NSOs (Non-Qualified Stock Options) | |
|---|---|---|
| Who gets them | Employees only | Employees, contractors, board members |
| Tax at exercise | No ordinary income tax (but AMT may apply) | Spread is ordinary income at exercise |
| Tax at sale | Capital gains if qualifying disposition | Capital gains on post-exercise appreciation |
| ISO annual limit | $100,000 in first-year vesting value | No limit |
| Common at | Startups and early-stage companies | All stages |
The ISO AMT trap
Exercising ISOs doesn't trigger ordinary income tax — but it triggers Alternative Minimum Tax (AMT) based on the "bargain element" (market price minus strike price). If you exercise large ISO grants in a year when the stock is private and illiquid, you can owe hundreds of thousands in AMT on gains you can't yet sell. This has bankrupted employees of companies that failed after a large exercise. Consult a CPA before exercising significant ISO grants.
The 83(b) election: time-sensitive and high-value for early employees
When you receive stock subject to vesting (common at startups with "early exercise" options), you can file an 83(b) election within 30 days to be taxed on the grant value now — potentially zero if you exercise early at a penny per share — rather than at the higher value when it vests.
Example: You exercise 100,000 options at $0.01 strike when FMV is also $0.01. File an 83(b). Tax = $0. Four years later, vested shares are worth $10 each ($1M). Your basis is $1,000 (original exercise). Long-term capital gains on $999,000 instead of ordinary income. The 83(b) is one of the most valuable tax tools for startup employees — and one of the most often missed.
The 30-day deadline is hard. An 83(b) election must be filed with the IRS within 30 days of the exercise/grant date. No extensions, no exceptions. Set a reminder immediately upon receiving a stock grant or exercising early. Missing this deadline is irreversible.
How to value equity in a job offer
| Company Stage | Discount to Apply | Rationale |
|---|---|---|
| Public (NYSE/NASDAQ) | 20–30% | Vesting risk, blackout periods, tax drag at vesting |
| Late private (Series D+, unicorn) | 50–70% | Illiquidity, exit uncertainty, preferred share priority |
| Mid-stage private (Series B/C) | 70–85% | High failure rate, long exit timeline |
| Early-stage / pre-revenue | 85–97% | Treat as speculative; don't count on it for financial planning |
Negotiating a job offer with equity?
Use our Salary Negotiation Calculator to convert equity + base + bonus into an annualized total compensation figure you can compare across offers.
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Randive, A. (2026). Equity Compensation 101: RSUs, Options, and What They're Worth. DecisionsCalc. https://decisionscalc.com/articles/equity-compensation-rsu-options/