---
title: 'What are RSUs? Explained in Simple Terms'
source: 'https://youtube.com/watch?v=YDdcYQDkuLc'
video_id: 'YDdcYQDkuLc'
date: 2026-08-05
duration_sec: 78
---

# What are RSUs? Explained in Simple Terms

> Source: [What are RSUs? Explained in Simple Terms](https://youtube.com/watch?v=YDdcYQDkuLc)

## Summary

This video explains Restricted Stock Units (RSUs) in simple terms, covering the typical 4-year vesting schedule, the concept of a cliff, and the tax implications when shares vest.

### Key Points

- **What are RSUs?** [00:01] — RSUs (Restricted Stock Units) are offered by companies like SpaceX, Amazon, and Apple as part of compensation to incentivize employees to stay longer. They typically have a 4-year vesting schedule.
- **The Cliff** [00:17] — A cliff is a period (usually one year) before which no shares vest. This ensures employees don't join, grab shares, and quit immediately. After the cliff, a portion of shares vests.
- **Vesting Schedule** [00:31] — Example: If granted 4,000 shares, at year one you unlock 25% (1,000 shares). After that, you vest equal amounts monthly until fully vested at year four.
- **Taxation on Vesting** [00:43] — Once RSUs vest, they are considered income and taxed like a paycheck based on the stock's value on the vesting day. For example, 1,000 shares at $150 each adds $150,000 to your taxable income.
- **Selling to Cover Taxes** [01:09] — Many companies automatically sell some vested shares to cover the tax liability, which is a common practice.

### Conclusion

RSUs are a common form of stock-based compensation that vest over time and are taxed as income upon vesting, with companies often selling shares to cover taxes.

## Transcript

like SpaceX, Amazon, Apple, or any other big company that offers stock, you might get offered something called an RSU or a restricted stock unit. These incentivize longer, and most of these RSUs have what's called a 4-year vesting schedule
mean? Pretend you're granted 4,000 shares of SpaceX when you sign your offer letter. Well, from day zero to the end of year one while working there, you cliff. That's to ensure that people don't just join the company, grab and
then quit, which makes a lot of sense. At year one, you will unlock 25% of your shares, and then you'll start to vest more in equal amounts every month after that until you're fully vested at year four. Once RSUs become vested, they get
now that they're actually yours, so you sell them. But, the thing most people miss is that once they vest, they actually count as income, so the value of those shares on your vesting day, it
gets taxed like a paycheck. So, if you have 1,000 shares and the stock is trading at $150, that's $150,000 added if you never touch them or sell them at all. Some companies will handle this by
automatically selling some of your shares to cover the tax. That's pretty normal. And this is how stock-based compensation works, especially at a big compensation works, especially at a big company.