Stock Bonus vs Cash Bonus — Tax Comparison and Which Is Better
Many employers offer bonuses in stock (usually Restricted Stock Units or RSUs) instead of — or in addition to — cash. Both are fully taxable, but the timing, rates, and long-term implications differ. Cash bonuses are taxed immediately and predictably. Stock bonuses are taxed at vesting, but their after-tax value depends on what the stock does afterward.
See your cash bonus after taxes with the Bonus Tax Calculator.
Side-by-Side Tax Comparison
| Feature | Cash Bonus | RSU / Stock Bonus |
|---|---|---|
| When taxed | When received | When vested (released to you) |
| Tax type at receipt/vesting | Ordinary income | Ordinary income |
| Federal withholding | 22% flat | 22% (often shares sold to cover) |
| FICA taxes | Yes (7.65%) | Yes (7.65%) |
| State tax | Yes | Yes |
| Future gains/losses | N/A (it's cash) | Capital gains/losses after vesting |
| Holding period | N/A | Long-term capital gains after 1 year from vesting |
How RSUs Are Taxed
RSUs are taxed in two phases:
Phase 1: At Vesting (Ordinary Income)
When RSUs vest, the fair market value of the shares is treated as ordinary income — just like a cash bonus.
| Example | Amount |
|---|---|
| RSUs granted | 200 shares |
| Stock price at vesting | $100/share |
| Taxable income at vesting | $20,000 |
| Federal withholding (22%) | $4,400 |
| FICA (7.65%) | $1,530 |
| State tax (5%) | $1,000 |
| Net value at vesting | $13,070 |
Most employers use "sell to cover" — they sell enough shares to cover the tax withholding and release the remaining shares to you.
Phase 2: After Vesting (Capital Gains)
Any gain or loss after vesting is treated as a capital gain or loss. Your cost basis is the price at vesting.
| Sell Price | Gain/Loss | Tax Rate | Tax on Gain |
|---|---|---|---|
| $120 (held 1+ year) | $20/share ($4,000 total) | 15% LTCG | $600 |
| $120 (held under 1 year) | $20/share | Your marginal rate | $960 |
| $80 (sold at a loss) | -$20/share ($4,000 loss) | Capital loss deduction | -$600 savings |
Cash Bonus: Simple and Immediate
| Example | Amount |
|---|---|
| Cash bonus | $20,000 |
| Federal withholding (22%) | $4,400 |
| FICA (7.65%) | $1,530 |
| State tax (5%) | $1,000 |
| Net received | $13,070 |
| Future appreciation | None (it's cash) |
| Risk of loss | None |
Which Is Better?
| If You Believe... | Better Choice |
|---|---|
| Company stock will go up significantly | Stock bonus (upside potential) |
| Company stock is fairly valued or risky | Cash bonus (certain value) |
| You want immediate liquidity | Cash bonus |
| You want long-term capital gains treatment | Stock bonus (hold 1+ year after vesting) |
| You already hold a lot of company stock | Cash bonus (diversification) |
| You're in a high tax bracket | Either — taxed the same at receipt |
The Concentration Risk
One critical consideration: if your salary, bonus, and retirement savings are all tied to the same company, you have dangerous concentration risk. If the company struggles, you could lose your job, see your stock bonus drop in value, and have your 401(k) decline — all at once.
Rule of thumb: No more than 10–15% of your total investment portfolio should be in a single stock, including your employer's stock. If RSU vesting would push you above that, sell shares after vesting and diversify.
For the full guide to bonus taxation, see How Bonuses Are Taxed in 2026. For comparing commissions, read Commission vs Bonus — How Each Is Taxed. And for sign-on bonus specifics, check Are Sign-On Bonuses Taxed?.
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