---
title: "RSU vs Restricted Stock: 83(b) Elections, Taxation, and Key Differences"
slug: rsu-vs-restricted-stock
publishedAt: 2026-04-04T11:27:29.536Z
updatedAt: 2026-06-26T15:54:54.593Z
author: "Mike Navarro"
authorSlug: mike-navarro
category: "Equity Compensation"
tags: ["RSU", "Restricted Stock", "Equity Compensation", "Tax Planning", "Comparison"]
excerpt: "RSUs are a promise to deliver shares at vest. Restricted stock is actual shares granted immediately (subject to forfeiture). The key difference: restricted stock is eligible for the 83(b) election, which can save tens of thousands in taxes. RSUs are not."
canonical: https://myequitytax.com/blog/rsu-vs-restricted-stock
---
In the RSU vs restricted stock comparison, the key difference is that restricted stock (RSAs) are actual shares granted immediately and qualify for the 83(b) election, while RSUs are only a promise to deliver shares and do not. That single distinction can shift hundreds of thousands of dollars from ordinary income to long-term capital gains.
RSUs and restricted stock sound similar but are fundamentally different instruments. **Restricted Stock Units (RSUs)** are a promise to deliver shares in the future. **Restricted Stock Awards (RSAs)** are actual shares given to you immediately --- subject to a vesting schedule and forfeiture if you leave early. The income you eventually recognize at vesting is taxed as ordinary compensation and reported on your W-2 ([IRS Publication 525](https://www.irs.gov/publications/p525)).
## RSU vs Restricted Stock: The Core Difference
**RSU (Restricted Stock Unit):** You do not own any shares until they vest. Before vesting, you have no voting rights, no dividend rights, and no shares in your brokerage account. At vesting, shares are delivered and the full FMV is taxed as ordinary income.
**Restricted Stock (RSA):** You own the shares from day one --- they sit in your brokerage account immediately. However, they are subject to a **vesting schedule** and a **substantial risk of forfeiture** (if you leave before vesting, you forfeit unvested shares). The shares are "restricted" because you cannot sell them until they vest.
## RSU vs Restricted Stock: Side-by-Side Comparison
| Feature | RSU | Restricted Stock (RSA) |
|---------|-----|----------------------|
| **When you own shares** | At vesting | At grant (subject to forfeiture) |
| **Voting rights** | None until vest | Yes, from grant date |
| **Dividend rights** | Typically none (may get dividend equivalents) | Yes, from grant date |
| **83(b) election eligible** | **No** | **Yes** |
| **Tax without 83(b)** | Ordinary income at vest on FMV | Ordinary income at vest on FMV |
| **Tax with 83(b)** | N/A | Ordinary income at grant on current FMV |
| **Risk if you leave early** | Unvested units canceled (no loss) | Unvested shares forfeited (lose any 83(b) tax paid) |
| **Typical company stage** | Public, late-stage private | Early-stage startup |
| **Common at** | Google, Amazon, Meta, Apple, Microsoft | Pre-revenue startups, co-founder grants |
## The 83(b) Election: Why It Matters
The [83(b) election](/blog/83b-election-explained) is a filing with the IRS that lets you pay tax on restricted stock at the **grant date** instead of waiting until vesting. You must file within **30 days** of the grant --- miss this deadline and you lose the option permanently.
### Why This Is Powerful
At an early-stage startup, the FMV of shares at the grant date may be very low (pennies to a few dollars). Without an 83(b) election, you wait until vesting, at which point the FMV may have grown enormously --- and you owe ordinary income tax on the full vested value.
With an 83(b) election, you pay tax on the low grant-date value, and **all subsequent appreciation is taxed as a long-term capital gain** (if held for 1+ year after the grant date).
The chart below illustrates how the ordinary-income rate that applies to RSU and no-election restricted stock vesting compares to the long-term capital gains rate the 83(b) path can unlock.
## Worked Example: 10,000 Restricted Shares at an Early-Stage Startup
**Setup:**
- 10,000 restricted shares granted on January 15, 2025
- FMV at grant: $1/share (total value: $10,000)
- 4-year vesting schedule (25%/year)
- FMV at each vest date: Year 1: $5, Year 2: $15, Year 3: $30, Year 4: $50
### Without 83(b) Election
Tax is owed as shares vest, based on FMV at each vesting date:
| Year | Shares Vesting | FMV/Share | Ordinary Income | Tax (35% rate) |
|------|---------------|-----------|-----------------|----------------|
| Year 1 | 2,500 | $5 | $12,500 | $4,375 |
| Year 2 | 2,500 | $15 | $37,500 | $13,125 |
| Year 3 | 2,500 | $30 | $75,000 | $26,250 |
| Year 4 | 2,500 | $50 | $125,000 | $43,750 |
| **Total** | **10,000** | | **$250,000** | **$87,500** |
### With 83(b) Election
Tax is owed at grant on the full 10,000 shares at the grant-date FMV:
| Event | Amount | Tax |
|-------|--------|-----|
| At grant (83(b) filed) | 10,000 x $1 = $10,000 ordinary income | **$3,500** |
| At sale (Year 4, $50/share) | $490,000 long-term capital gain ($50 - $1 x 10,000) | **$73,500** (at 15%) |
| **Total tax** | | **$77,000** |
**The 83(b) election saves $10,500 in this example** ($87,500 vs $77,000). But the real savings are even larger because without 83(b), the $250,000 in ordinary income would likely push you into higher brackets (37% federal + state), while the $490,000 LTCG with 83(b) is taxed at a flat 15-20%. (At this gain size, also factor in the 3.8% Net Investment Income Tax on the long-term gain — it applies once MAGI exceeds $200,000 single / $250,000 MFJ.)
### What If the Stock Price Drops?
This is the risk. If you file an 83(b) election, pay $3,500 in tax, and then the company fails (shares become worthless), you **cannot recover the tax paid**. You can only claim a capital loss (limited to $3,000/year against ordinary income). You also forfeit unvested shares if you leave.
## Why RSUs Cannot Use 83(b)
The 83(b) election under IRC Section 83(b) applies to **property transferred in connection with the performance of services** that is subject to a substantial risk of forfeiture. RSUs do not qualify because:
1. **No property is transferred at grant.** RSUs are a contractual promise, not actual shares. You do not own anything until vesting.
2. **Nothing to value at grant.** Since no shares exist in your name, there is no property to elect to include in income.
3. **IRS regulations are explicit.** Treasury Reg. 1.83-3(e) defines RSUs as unfunded deferred compensation, not transferred property.
This is the single most important distinction between RSUs and restricted stock from a tax planning perspective.
## Decision Matrix: When Each Type Is Appropriate
| Scenario | Better Choice | Why |
|----------|--------------|-----|
| Early startup, FMV is very low | **Restricted Stock + 83(b)** | Pay minimal tax now, convert all future appreciation to LTCG |
| Early startup, you cannot afford any tax | **RSU** | No tax until vest (but you lose the 83(b) opportunity) |
| High-confidence startup, low current FMV | **Restricted Stock + 83(b)** | Maximum tax savings if company succeeds |
| Uncertain outcome, you might leave early | **RSU** | No risk of losing tax paid on forfeited shares |
| Public company | **RSU** | Standard practice; shares are liquid at vest to cover taxes |
| Founder/co-founder at incorporation | **Restricted Stock + 83(b)** | FMV is essentially $0; 83(b) tax is negligible |
The visual below summarizes how different equity strategies trade off upfront tax against the share of gain that ultimately qualifies for capital-gains treatment.
**The 83(b) election deadline is strict: 30 calendar days from the grant date.** There are no extensions, no exceptions. If you receive restricted stock and want to file, act immediately. Use our [83(b) calculator](/calculator/83b) to evaluate whether filing makes sense for your situation.
## 83(b) Filing: Step-by-Step Process
The 83(b) election is the single biggest advantage of restricted stock over RSUs. But the filing process is unforgiving --- miss any step and you lose the opportunity permanently.
**Step 1: Complete IRS Form 15620** (or a substantially similar written statement) within **30 calendar days** of the grant date. The form requires: your name, address, SSN, the property description, the date transferred, the FMV at grant, the amount paid, and a statement that you are making an election under Section 83(b).
**Step 2: Mail to the IRS service center** where you file your return. Send via **certified mail with return receipt requested** --- this is your proof of timely filing. The postmark date must be within the 30-day window. Do not rely on email, fax, or hand delivery to an IRS office.
**Step 3: Send a copy to your employer.** Your company's stock plan administrator needs to know you filed. Some companies require this for their own tax reporting. Send it in writing (email is usually acceptable for this step).
**Step 4: Attach a copy to your tax return** for the year the grant was made. While the IRS no longer technically requires this attachment (since 2016), it is best practice to include it to avoid processing errors.
The 30-day deadline is calculated from the **date the property is transferred** to you (typically the grant date on your award agreement). Weekends and holidays count. There are no extensions, no late-filing exceptions, and no relief for "reasonable cause." If day 30 falls on a weekend, file before the weekend to be safe. For a full walkthrough, see our [83(b) election guide](/blog/83b-election-explained).
## Worked Example: 83(b) Tax Savings at a Seed-Stage Startup
This example shows why the 83(b) election is so powerful at early-stage companies:
**Setup:** 10,000 restricted shares at a seed-stage startup. FMV at grant: **$0.50/share**. Four-year vesting. The company eventually reaches a $50/share exit (IPO or acquisition).
### Path A: File 83(b) at Grant
| Event | Income | Tax Rate | Tax |
|-------|--------|----------|-----|
| Grant date: 83(b) on $5,000 (10,000 x $0.50) | $5,000 ordinary income | 37% (high bracket) | **$1,850** |
| Exit at $50/share after 1+ year from grant | $495,000 LTCG ($50 - $0.50 x 10,000) | 20% (LTCG rate at this income) | **$99,000** |
| **Total tax** | | | **$100,850** |
### Path B: No 83(b) (Restricted Stock Taxed at Vest)
| Event | Income | Tax Rate | Tax |
|-------|--------|----------|-----|
| Year 1 vest: 2,500 shares at ~$5 FMV | $12,500 ordinary income | 35% | $4,375 |
| Year 2 vest: 2,500 shares at ~$15 FMV | $37,500 ordinary income | 35% | $13,125 |
| Year 3 vest: 2,500 shares at ~$30 FMV | $75,000 ordinary income | 37% | $27,750 |
| Year 4 vest: 2,500 shares at ~$50 FMV | $125,000 ordinary income | 37% | $46,250 |
| Ordinary-income tax at vest | $250,000 total | | **$91,500** |
| Exit at $50/share (held 1+ yr after each vest): $500,000 − $250,000 vest-date basis | $250,000 LTCG | 20% | $50,000 |
| **Total tax** | | | **$141,500** |
### Path C: RSU Equivalent (for Comparison)
| Event | Income | Tax Rate | Tax |
|-------|--------|----------|-----|
| Same as Path B (RSUs can't elect 83(b)): ordinary tax at vest, then LTCG held to exit | $250,000 ordinary + $250,000 LTCG | 37% / 20% | **~$141,500** |
**83(b) saves ~$40,650 in this example** — $141,500 without the election versus $100,850 with it, comparing apples to apples (both paths hold the shares to the same $50 exit). The reason: 83(b) lets you pay ordinary-income tax once, on just $5,000 at grant, and treat *all* the post-grant appreciation as long-term capital gain. Without it, the $250,000 of vest-date value is taxed as ordinary income (up to 37%), and only the appreciation *after* vesting gets LTCG treatment. State tax widens the gap further — in California ([how California taxes equity compensation](https://www.ftb.ca.gov/file/personal/income-types/stock-options.html)), concentrating income in a single $5,000 grant year instead of $250,000 across vesting years saves several thousand more. The catch: you pay the (tiny) 83(b) tax up front and forfeit it if you leave before vesting — which is exactly why 83(b) shines when the grant FMV is very low.
## When Companies Grant Each Type
The choice between restricted stock and RSUs is almost entirely determined by company stage and FMV:
**Restricted stock (early-stage):** Seed and Series A startups overwhelmingly prefer restricted stock. The FMV is low enough (often under $1/share) that the 83(b) tax is trivial --- paying ordinary income on $5,000 of restricted stock is a rounding error compared to the potential upside. Founders almost always receive restricted stock with immediate 83(b) elections. The first 10-20 employees frequently receive the same treatment.
**RSUs (growth-stage and beyond):** Once a company reaches Series B or later, the 409A valuation has typically risen to $5-$50/share. At these valuations, filing an 83(b) on a meaningful restricted stock grant (say, 10,000 shares at $20 FMV) would require paying ordinary income tax on $200,000 immediately --- before the shares vest and before you can sell them. Most employees cannot or will not take this risk. RSUs avoid the problem entirely: no upfront tax, no exercise decision, and shares can be sold at vest to cover the tax bill.
**Historical context:** Before 2005, stock options were the dominant equity instrument because they did not require an accounting charge under the old rules (APB 25). When FAS 123R mandated expensing of stock options at fair value, the accounting cost of options rose dramatically. RSUs became relatively cheaper from an accounting perspective because their value is straightforward to calculate (no Black-Scholes modeling needed). Section 409A (enacted 2004, effective 2005) also imposed strict valuation requirements on deferred compensation, making restricted stock grants more complex for private companies. These regulatory changes drove the widespread shift from options to RSUs that we see today.
## Restricted Stock at Public Companies
While RSUs dominate at public companies, some companies still grant restricted stock. The difference at a public company is that the FMV at grant is **already high** (the current market price), so the 83(b) election is less advantageous --- you would be paying ordinary income tax on the full market value immediately rather than spreading it across vesting dates.
The 83(b) election is most powerful when the grant-date FMV is **significantly lower** than the expected future value --- which is why it is primarily used at early-stage startups.
## Impact on Departing Employees
| Scenario | RSU | Restricted Stock |
|----------|-----|-----------------|
| You leave before vesting | Unvested RSUs are canceled. No tax consequence. | Unvested shares are forfeited. If you filed 83(b), you lose the shares AND the tax paid. |
| You are terminated | Same --- unvested RSUs are canceled. | Same --- unvested shares forfeited. 83(b) tax is not recoverable. |
| Company is acquired | Depends on acquisition terms (may accelerate vesting) | Same --- depends on acquisition terms. |
## Frequently Asked Questions
**Can I file an 83(b) election for RSUs?**
No. The 83(b) election only applies to property that has been transferred to you and is subject to a substantial risk of forfeiture. RSUs are a contractual promise, not transferred property. You cannot file 83(b) for RSUs. For a detailed explanation, see our [83(b) election guide](/blog/83b-election-explained).
**What happens if I forget to file the 83(b) election within 30 days?**
You permanently lose the ability to make the election for that grant. There is no late filing mechanism, no penalty payment, and no exception --- not even reasonable cause. The IRS deadline is absolute. Your restricted stock will be taxed at vesting, the same as if you had never intended to file.
**Is restricted stock the same as stock options?**
No. Restricted stock is actual shares granted to you (subject to vesting and forfeiture). Stock options give you the right to buy shares at a strike price (see [IRS Tax Topic 427 on stock options](https://www.irs.gov/taxtopics/tc427)). With restricted stock, you own shares from day one. With options, you own nothing until you exercise and buy.
**Do RSUs or restricted stock have more upside potential?**
The upside is the same for equivalent share amounts --- both give you actual shares. The difference is in tax treatment. Restricted stock with an 83(b) election can convert all appreciation to LTCG (15-20%), while RSU appreciation at vesting is always ordinary income (up to 37% + state). After vesting, both are taxed identically on further appreciation.
**My company calls them "restricted stock" but they vest in the future. Are they RSUs or restricted stock awards?**
Check your grant agreement. If it says you receive shares "upon vesting" or "at the time of settlement," those are RSUs. If it says shares are "issued immediately" or "subject to repurchase" or "subject to forfeiture," those are restricted stock awards. The legal distinction matters for 83(b) eligibility. Our [RSU tax rate guide](/blog/rsu-tax-rate) explains the nuances.