The core difference between a PSU and an RSU is what has to happen before shares land in your account. A restricted stock unit (RSU) vests based on time: stay employed through the schedule and you get the shares. A performance stock unit (PSU) adds a second hurdle: the company also has to hit specific financial or operational targets, and the number of shares you receive scales with how well those targets are met. Both are taxed the same way once shares are delivered, but the risk profile leading up to that moment is very different.
What Each Grant Actually Is
An RSU is a contractual promise from your employer to deliver shares at a future date. Nothing sits in your brokerage account when the grant is made. You have no voting rights, no dividends, and no ownership. The grant is just a right to receive stock later, contingent on continued employment.
A PSU works the same way mechanically but layers on performance conditions. Those targets vary by company and can include earnings-per-share growth, total shareholder return measured against a peer group, revenue milestones, or operational metrics such as inventory turnover.1U.S. Securities and Exchange Commission. United Technologies Corporation Schedule of Terms for Performance Share Unit Awards No performance, no shares, regardless of how long you stayed.
A boundary worth flagging: Section 83(b) elections, which some equity holders use to recognize income early, are not available for either RSUs or PSUs. That election applies only when actual shares have been transferred subject to forfeiture. RSUs and PSUs are promises, not transferred property, so there is nothing to elect on.2Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
Vesting: Calendar vs. Company Performance
RSUs follow a time-based schedule. Two common structures dominate. Cliff vesting holds everything back until a single date, then releases the full grant. Graded vesting releases shares in installments, often 25% per year over four years, though some plans front-load the schedule. Leave before a vesting date and the unvested portion is usually forfeited immediately.
PSUs run on a defined performance period, most commonly three years. At the end of that period, the company measures actual results against pre-set targets and applies a multiplier. That multiplier typically ranges from 0% when results miss the minimum threshold to 200% when results exceed the maximum.1U.S. Securities and Exchange Commission. United Technologies Corporation Schedule of Terms for Performance Share Unit Awards Most PSU plans also require continuous employment through the entire performance period, which stacks retention risk on top of performance risk.
The practical effect shows up in the share count you can plan around. Hold 1,000 RSUs and stay employed through the schedule, and you will receive 1,000 shares. Hold 1,000 target PSUs, and you could receive anywhere from zero to 2,000 shares. PSU holders do not know the final number until the performance period closes and the compensation committee certifies results.
How Both Get Taxed at Delivery
Neither grant creates a taxable event on the grant date. The tax event is delivery. Under Section 83 of the Internal Revenue Code, property received for services is included in gross income when it is no longer subject to a substantial risk of forfeiture.2Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services For RSUs and PSUs, that moment arrives when shares hit your account.
At delivery, the fair market value of the shares is treated as ordinary income, taxed the same as salary. Your employer reports the amount on your W-2, and it is subject to federal income tax, state income tax where applicable, Social Security, and Medicare.
The math for RSUs is simple: shares vested times the stock price on the delivery date. Five hundred shares vesting at $100 produces $50,000 of ordinary income. For PSUs, the same calculation applies but with the multiplier baked in. A 500-share target that pays out at 150% delivers 750 shares, which at $100 per share is $75,000 of ordinary income.
Most employers handle the withholding through a sell-to-cover arrangement. The company automatically sells enough of the newly vested shares to cover federal, state, and payroll withholding, then deposits the rest in your brokerage account. That is why the share count you see is smaller than the gross vesting number.
The 22% Withholding Problem
Federal rules let employers withhold on supplemental wages, including RSU and PSU income, at a flat 22% rate for amounts up to $1 million per year. Above $1 million, the mandatory rate climbs to 37%. Those rates hold for 2026.
Twenty-two percent is not enough for most people receiving meaningful equity. If your household income puts you in the 32% or 35% federal bracket, the gap between what came out of the vesting and what you actually owe can be several thousand dollars. Someone earning $250,000 in base salary whose RSUs deliver another $150,000 is paying a marginal rate of 32% or higher on much of that RSU income, but only 22% was withheld. State under-withholding can widen the gap.
The IRS expects you to close the gap through quarterly estimated payments if you will owe at least $1,000 after all withholding and credits. The safe harbor to avoid underpayment penalties is paying at least 90% of your current-year tax, or 110% of your prior-year tax if your adjusted gross income exceeded $150,000.3Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc. A simpler route is to increase your regular W-4 withholding ahead of a vesting event, since paycheck withholding counts the same as estimated payments for penalty purposes.
The opposite problem hits vestings above $1 million. The 37% mandatory rate can exceed your effective rate, producing a refund. The cash is real, but it stays tied up until you file.
Cost Basis and the 1099-B That Looks Wrong
Once shares vest and withholding is settled, you own stock with a defined cost basis. That basis is the fair market value per share on the delivery date. Every future gain or loss is measured from there.
Sell above that basis and the gain is a capital gain. The rate depends on how long you held the shares after delivery. Sell within one year and it is short-term, taxed at ordinary rates. Hold longer than a year and it qualifies for long-term rates, which for 2026 are 0% on taxable income up to $49,450 for single filers ($98,900 joint), 15% up to $545,500 ($613,700 joint), and 20% above.4Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates High earners also face an additional 3.8% net investment income tax on capital gains when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers.5Internal Revenue Service. Topic No. 559, Net Investment Income Tax
Here is where a lot of returns go wrong. Brokers are generally prohibited from reporting the full adjusted cost basis for equity compensation shares on Form 1099-B. You will often see a cost basis of $0 or a blank field, which makes the entire sale look like taxable gain. It is not. You already paid ordinary income tax on the delivery-date value through your W-2.
To avoid paying tax on the same dollars twice, report the correct adjusted cost basis on Form 8949 when you file. Your brokerage should provide a supplemental information form showing the proper adjusted basis. Use that number, not the one on the 1099-B. Skip this step and the IRS will see a $0 basis and assess capital gains tax on the full proceeds. This is the single most common filing error with equity compensation.
Wash Sales When Vestings Are Frequent
If you sell vested shares at a loss and another batch of the same company’s stock vests within 30 days, you have likely triggered a wash sale. The IRS treats RSU vesting as an acquisition of shares, which puts it inside the wash sale rule’s 61-day window: 30 days before and 30 days after the loss sale.6eCFR. 26 CFR 1.1091-1 – Losses From Wash Sales of Stock or Securities
When the rule fires, the current-year loss deduction is disallowed. The disallowed amount gets added to the cost basis of the newly acquired shares, so the loss is deferred rather than lost. If your RSUs vest every quarter, there is almost no clean window to realize a loss without a nearby vesting scooping it up. Map your vesting calendar before any tax-loss selling.
What a Merger or Acquisition Does to Unvested Grants
A corporate acquisition can rewrite your vesting outcome. Treatment of unvested RSUs and PSUs depends on your grant agreement, the equity plan document, and the deal terms negotiated between buyer and seller.
Common outcomes for unvested RSUs include accelerated vesting at closing, conversion to equivalent equity in the acquiring company, a cash buyout at a negotiated value, or in some cases outright cancellation. Which applies is entirely a document question.
PSUs carry extra complications because the performance period is often mid-flight. Buyer and seller have to agree on how to handle metrics that will no longer be measurable after closing. Common approaches include paying out at target-level performance, measuring actual performance through the closing date, or converting remaining PSUs to time-only awards with the acquirer. Some deals set a floor at the target payout regardless of actual results to date.
Many modern plans use double-trigger acceleration: two events are required before vesting speeds up, typically the acquisition itself plus an involuntary termination or significant role reduction within a specified window after closing. Single-trigger plans accelerate on the deal alone. Double-trigger has become more common because buyers do not want the entire workforce vested out and gone on day one.
If your company is being acquired, read the grant agreement and the plan document. The change-of-control provisions are spelled out there and vary meaningfully between companies, and even between grant years at the same company.
Clawback Risk That Falls Harder on PSU Holders
Executive officers at publicly traded companies carry a risk with PSUs that time-vested RSUs largely avoid. Under SEC Rule 10D-1, companies listed on U.S. exchanges must maintain a written policy to recover incentive-based compensation that was erroneously awarded because of a financial restatement.7eCFR. 17 CFR 240.10D-1 – Listing Standards Relating to Recovery of Erroneously Awarded Compensation
The look-back window covers the three completed fiscal years before the company is required to restate. The recoverable amount is the excess over what would have been paid under the corrected numbers, computed without regard to the taxes the executive already paid on the original amount.8U.S. Securities and Exchange Commission. Recovery of Erroneously Awarded Compensation Fact Sheet The company cannot indemnify you against a clawback.
PSUs tied to earnings-per-share or revenue targets sit directly in the line of fire, since those are the metrics most likely to move in a restatement. RSUs that vest purely on time generally fall outside the rule because their value is not linked to a financial reporting metric. Senior leaders receiving large PSU grants should treat this as a live risk in their financial planning.