Are RSUs from private companies taxable income

Quick answer: For 2025, restricted stock units (RSUs) — including those from a private company — are generally taxed as ordinary income when they "settle" (i.e., when the shares are actually delivered to you and vest), based on the fair market value of the stock at that time. A special election under IRC § 83(i) may let eligible employees of private companies defer that income for up to 5 years.

How it works

RSUs are a form of deferred stock compensation, but the Code treats them differently from other restricted property. The statute is explicit: the general restricted-property rules of section 83 (other than the qualified equity grant subsection), including the section 83(b) election, do not apply to restricted stock units.¹ That means the "substantially vested" timing rules that apply to restricted stock awards (actual shares given to you subject to forfeiture) don't govern RSUs the same way — with RSUs, you don't own actual shares until they settle, so there's no property to make an early-inclusion election on in the first place.

Instead, RSU income is normally recognized at settlement — the date the shares are actually issued to you — at that share's fair market value, taxed as compensation (ordinary income), subject to withholding and payroll taxes.

The private-company deferral option: § 83(i)

A 2017 law change (Pub. L. 115-97) added an election that can help employees of private companies in particular. IRS Publication 525 explains: Pub. L. 115-97 made a change in the law that allows a new election for "qualified employees" of private corporations to elect to defer income taxation for up to 5 years from the date of vesting on "qualified stock" granted in connection with broad-based compensatory stock option and restricted stock unit (RSU) programs, available for stock attributable to options exercised or RSUs settled after 2017.²

To qualify, the company must meet a broad-based grant requirement: the corporation must have a written plan providing an RSU or option to at least 80% of U.S. employees, and the recipients must have the same rights and privileges under an RSU or option plan.³ Certain people are excluded from being "qualified employees," including a 1% owner of the corporation, the current or former CEO or CFO, family of those individuals, or one of the four highest compensated officers.⁴

If you're eligible and want to defer, the election has a strict deadline: it must be made no later than 30 days after the first date the rights of the employee in such stock are transferable or aren't subject to a substantial risk of forfeiture, whichever occurs earlier.⁵ Note this election is made differently than a regular restricted-stock election — Publication 525 warns: you can't use Form 15620, Section 83(b) Election, to make an election under section 83(i); for an election under section 83(i), follow instructions detailed in IRS Notice 2018-97 instead.⁶

Risks and limits

Even if you defer, the deferred income comes due at the earliest of several triggering events. Publication 525 lists them: the income must be included in the employee's income for the year that includes the earliest of (1) the first date the qualified stock becomes transferable, (2) the date the employee first becomes an excluded employee, (3) the first date on which any stock of the employer becomes readily tradable on an established securities market, (4) the date 5 years after the first date the employee's right to the stock becomes substantially vested, or (5) the date on which the employee revokes their inclusion deferral election.⁷ Also, Publication 15B notes the employer must withhold at a high flat rate when deferred income is finally recognized: the employer must withhold federal income tax at 37% in the tax year that the amount deferred is included in the employee's income.⁸

In practice

Absent a valid § 83(i) election, private-company RSU income is simply taxed at settlement/vesting as ordinary income — there's no "early" election available the way there is for restricted stock awards. Whether § 83(i) is available and worth using depends heavily on your company's plan design and your role, so it's worth discussing your specific grant with a CPA.