The RSU Tax Gap: Why Vesting Day Looks Different in the U.S. vs. Israel
Receiving Restricted Stock Units (RSUs) is a highlight of tech compensation. But when those shares finally vest, employees in the U.S. and Israel face radically different tax realities.
The core difference isn't just how much tax you pay, but when the income is recognized.
The U.S. Approach: The "Vesting Cliff" In the eyes of the IRS, a vesting RSU is the equivalent of a cash bonus.
When it’s taxed: immediately upon vesting.
How it’s taxed: The full fair market value is treated as Ordinary Income, subject to your highest marginal tax rate plus payroll taxes.
Note: This is why many U.S. plans automatically "sell-to-cover" shares to pay the immediate tax bill.
The Israeli Approach: The "Deferred Advantage" Israel offers a distinct advantage, primarily through the "Section 102 Capital Gains Track."
When it’s taxed: Vesting is usually a non-event. Tax is deferred until you actually sell the shares (provided they are held by an approved trustee).
How it’s taxed: If held for at least 24 months from grant, the majority of the gain is usually taxed at the lower 25% Capital Gains rate, rather than highly taxed salary income. Please note that there are a number of nuanced rules between private and public company grants and taxation.
The Dual Citizen Trap If you are a U.S. person working in Israel, beware the "timing mismatch." The U.S. wants tax today (vesting), while Israel waits until tomorrow (sale). Without careful planning, this creates a foreign tax credit nightmare and potential double taxation.
Don't assume your payroll department has solved this for you. If you cross borders, get specialized tax advice.
