| Component | What It Is | Tax Treatment | Risk Level |
|---|---|---|---|
| Base salary | Fixed annual cash paid each pay period | Ordinary income + FICA (withheld via W-4) | None — guaranteed per contract |
| Annual bonus | Discretionary or formula-driven cash, paid 1–2x/year | Ordinary income; often withheld at 22% flat federal supplemental rate | Medium — may be reduced or eliminated |
| RSU (Restricted Stock Unit) | Promise of company shares that vest on a schedule | Ordinary income at vest; capital gains on post-vest appreciation | High — value fluctuates with stock price; unvested forfeited on quit |
| ESPP (Employee Stock Purchase Plan) | Right to buy company stock at a discount (typically 15%) via payroll deductions | Discount portion = ordinary income at sale; remainder may be capital gains | Medium — money tied up during offering period; qualifying vs. disqualifying dispositions differ |
| 401(k) match | Employer contribution matching your own 401(k) deferrals | Pre-tax; taxed as ordinary income at withdrawal | Low — but vesting cliff means unvested match is forfeited if you leave early |
RSUs vest, then they are taxable. The moment shares are delivered to you, the fair market value on that date is ordinary income — it appears on your W-2 just like salary. You owe income tax on it whether or not you sell the shares. If the stock then rises after vest, the additional gain is a capital gain; if it falls after vest, you cannot recover the income tax you already paid on the higher vest-date value.
You receive 1,000 RSUs that vest over 4 years (250 shares/year). At the first vest, the stock price is $40. The IRS treats 250 × $40 = $10,000 as ordinary income in that tax year — it appears on your W-2. Your employer withholds shares to cover taxes (common: 22% supplemental rate + state). If you keep the remaining shares and the stock falls to $25 two years later, you still owed tax on $10,000 at vest. The $15/share loss on post-vest shares is a capital loss, separately computed. The lesson: an RSU grant at $40 is NOT the same as $10,000 of cash, because the tax is locked in at vest regardless of what happens to the stock price afterward.
ESPP discount taxation has two modes. A 'qualifying disposition' means you hold ESPP shares for at least two years from the offering date and one year from purchase — the discount is ordinary income, but any additional gain above the discounted price is long-term capital gain (lower rate). A 'disqualifying disposition' (selling too soon) converts the entire gain to ordinary income. For most employees, the 15% discount alone makes ESPP participation worthwhile even with disqualifying dispositions.
The 401(k) match has a vesting cliff. If your employer offers 100% match up to 4% of salary but vests over three years, leaving after 18 months means you keep zero employer contributions. Check your plan document's vesting schedule before accepting a role — a two-year cliff with a $10,000 annual match is a $20,000 retention incentive hiding in plain sight.
Effective First-Year Comp = Base + Expected Bonus + Year-1 Vested RSU Value + ESPP Discount + Vested Match
| Item | Negotiable? | Notes |
|---|---|---|
| Base salary | Usually yes, within band | Ask for the top of the published level band if visible |
| Signing bonus | Often yes | Typically repaid (pro-rata) if you leave within 1–2 years |
| RSU grant size | Sometimes — especially at offer stage | Harder post-hire; the initial grant is the easiest leverage point |
| Bonus target % | Rarely — set by level | You can negotiate the level itself; the % follows |
| ESPP participation | No | Plan-wide terms; individual elections only affect your contribution rate |
Sit with the ideas.
You hold 500 RSUs that vest today. The company stock is at $60/share. Your marginal federal+state income tax rate is 35%. Which statement is correct?