Equity FAQ
Quick Answers to Your Equity Compensation Questions
We know our guides can feel like a lot to take in, especially when you’re just looking for a quick answer to a specific question. That’s why we’ve created this FAQ section—to give you clear, straightforward answers to your most pressing equity compensation questions. Our Quick Start Guides offer 2-minute intros. If you’re ready to dive deeper, you can explore our detailed guides.
What is equity compensation to begin with? Equity compensation refers to non-cash compensation that gives employees ownership in a company, typically through stock options, restricted stock units (RSUs), or employee stock purchase plans (ESPPs). It aligns employees’ financial success with the company’s growth. We have a comprehensive equity primer worth a read.
RSUs
RSUs (Restricted Stock Units) are shares of company stock that are granted to employees but vest over time, meaning they become yours after meeting certain conditions like tenure or performance. Read our RSU Guide for a deep-dive. Our RSU Quick Start offers a shorter 2-minute read.
RSUs are taxed as ordinary income when they vest. If you sell your RSUs later, any gain or loss from the vesting price is taxed as capital gains. You can calculate your own situation with our RSU Tax Estimator.
It depends on your financial goals, tax situation, and risk tolerance. Selling immediately can reduce risk, while holding may provide upside potential but increases exposure to company stock. We have a full guide on this: Tax Planning for RSUs.
Performance-based RSUs vest based on company or individual performance metrics, whereas time-based RSUs vest according to a set timeline.
Enter your RSU details, including vesting dates, share prices, and tax rates. The tool calculates your estimated tax obligations and provides actionable insights. You’ll find the calculator here.
ESPPs
An ESPP (Employee Stock Purchase Plan) lets employees buy company stock at a discount, often with a look-back provision that further enhances potential returns. Read our ESPP Guide for a comprehensive overview. Or our ESPP Quick Start to get the basics fast.
The look-back provision allows you to buy stock at the lower price between the start and end of the offering period, maximizing your discount. Our ESPP Calculator can give an overview of your situation.
Taxes depend on when you sell your shares. Selling immediately results in the discount being taxed as ordinary income, while holding for a qualifying period can reduce taxes with capital gains treatment. Use our ESPP Calculator to run your own numbers.
Typically, unused contributions are refunded, but you’ll forfeit the right to purchase shares for that period.
Yes! The ESPP Calculator works for plans with or without a look-back provision. Simply indicate the plan type, and the tool adjusts calculations accordingly. Check it out here.
Stock Options
Stock options give you the right to purchase company stock at a set price (strike price) within a specific period. They come in two types: Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs). We have a full dedicated Stock Options Guide. A shorter intro can be found in our Stock Options Quick Start.
ISOs offer favorable tax treatment but are subject to strict rules and the Alternative Minimum Tax (AMT). NSOs are simpler but generally result in higher taxes as ordinary income on the spread at exercise. Read our Stock Options Guide for more.
Timing depends on factors like your financial situation, tax impact, and the company’s growth potential. Early exercise can start the capital gains clock but requires cash upfront. Our Stock Options Guide can help you make informed decisions.
Taxes
The AMT is a parallel tax system that may apply when exercising ISOs. It calculates taxes differently, often resulting in a higher tax bill. Proper planning can minimize its impact.
State taxes vary and may apply based on where you work or live at the time of vesting, exercising, or selling.
Other Topics
Our calculators are designed to provide accurate estimates based on the data you input. However, always consult a financial advisor for decisions tailored to your specific situation.
Review the equity package details, including vesting schedules, potential tax implications, and the company’s financial outlook. Our guides can help you evaluate these factors. Our equity primer is a good place to start.
Absolutely! While equity compensation is most common in tech, anyone with equity compensation can benefit from our tools and guides.