How Your Amazon RSUs Work: Vesting, Taxes, Tips, & More
As an Amazon employee, RSUs likely make up a major portion of your compensation package. By understanding how your RSUs work, you can get more out of this benefit and boost your retirement savings.
Key Takeaways
RSUs are a key part of Amazon’s compensation package, included alongside your salary and other benefits.
Amazon's RSU vesting follows a unique 5/15/40/40 schedule, with 80% of your initial grant vesting in years three and four.
RSUs are taxed as ordinary income at vesting, regardless of whether you sell the shares.
Gains from shares sold in less than a year are taxed as short-term gains; held for more than a year, they are taxed as long-term capital gains.
What Are Amazon RSUs?
Restricted stock units (RSUs) are a form of equity compensation that Amazon provides to eligible employees as part of their total compensation package. Unlike traditional stock options, RSUs represent an IOU for shares of Amazon stock that you will receive once they vest.
These equity awards serve multiple purposes:
They supplement your base salary
They incentivize savings by using a multi-year vesting schedule
They offer potential for significant wealth growth if Amazon's stock performs well
Eligibility for Amazon Employees
As of 2025, most Amazon employees are eligible for RSUs. However, there are some exceptions:
Employees working fewer than 30 hours per week are typically ineligible
Employees at certain job levels may not qualify for the RSU program
Some contract or temporary positions may not include RSUs in their compensation structure
If you're unsure about your eligibility, you can check your offer letter or contact Amazon's HR department for clarification.
How Your Amazon RSUs Work
RSU Grants
Amazon grants RSUs to employees at different stages in their careers.
New Hire Grants: Provided as part of your initial compensation package when joining Amazon
Annual Performance Grants (Refreshers): Additional RSUs awarded during annual performance reviews
Promotion Grants: Extra RSUs awarded when you receive a promotion
Special Recognition Grants: Occasionally awarded for exceptional performance
The value of your RSU grant is typically communicated as a dollar amount (e.g., $100,000 in Amazon stock). The actual number of shares is determined by Amazon's stock price on the grant date.
Amazon's Unique RSU Vesting Schedule
Amazon's vesting schedule is notably different from most companies. Typically, RSUs vest evenly over a four-year period. Instead, Amazon uses a backloaded 5/15/40/40 schedule for new hire grants:
Year 1: 5% of your RSUs vest at the end of your first year
Year 2: 15% of your RSUs vest at the end of your second year
Year 3: 40% of your RSUs vest at the end of your third year
Year 4: 40% of your RSUs vest at the end of your fourth year
This schedule is designed to encourage longer-term employment, as 80% of your initial grant won’t vest until years 3 and 4.
In addition to this, after your second year, Amazon typically provides additional "refresher" RSU grants during annual performance reviews. These refreshers often follow a different vesting schedule than your initial grant and typically vest in May and November of each year.
Beginning in 2024, Amazon also introduced a pilot program that allows eligible employees (L4–L8) to vest RSUs quarterly (in May, August, November, and February) rather than semi-annually. Some employees even have the option to convert a portion of their RSUs into cash.
Holding or Selling Your RSUs
When your RSUs vest, you have two options:
Sell your shares immediately to convert them to cash
Hold your shares to sell at a later date (with the potential of appreciation and lower capital gains tax rates)
Your choice between these options will depend on your overall financial strategy and risk tolerance. A fiduciary financial advisor can help you make the right choice in your case.
Vesting Example
To better understand how Amazon's RSU vesting works, let's look at an example. Imagine you receive a $500,000 RSU grant when joining Amazon, with the stock price at $150 per share at grant time. This equals approximately 3,333 shares. Here's how those shares would vest over time (assuming no stock price changes):
Year 1: 167 shares (5%) = $25,000
Year 2: 500 shares (15%) = $75,000
Year 3: 1,333 shares (40%) = $200,000
Year 4: 1,333 shares (40%) = $200,000
Of course, since Amazon's stock price will fluctuate over the vesting period, the actual value of these shares at vesting may be higher or lower than the original grant value.
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How Amazon RSUs Impact Your Taxes
Taxation at Vesting
When your RSUs vest, the shares are taxed as ordinary income and reported on your W-2. This means:
The value is subject to federal, state, and local income taxes
Social Security and Medicare taxes also apply
The income may push you into a higher tax bracket
The income amount is determined by the market value of the shares on the day they vest.
Tax Withholding Options
When your RSUs vest, Amazon typically withholds a portion of your shares and sells them to cover the income tax. This is known as a "sell-to-cover" transaction. The default withholding rate is 22% for federal taxes (plus applicable state taxes).
However, this amount often isn't sufficient for higher-income employees and can result in a significant tax bill when you file your return. To avoid underpayment penalties, you may want to adjust your withholding rate through the Amazon stock portal.
Capital Gains Considerations
The length of time you wait before selling your vested shares will impact how they are taxed.
If you sell them within a year of vesting, any difference between the vesting price and the selling price will be treated as ordinary income.
If you hold them for more than a year before selling, any gain will be taxed as a long-term capital gain, which typically results in a lower rate.
Benefits of Amazon RSUs
Potential for Growing Wealth
For long-term Amazon employees, the combination of initial grants and refreshers can lead to substantial equity accumulation over time. Many Amazon employees have built significant wealth through their RSU grants over the years.
Predictable Vesting Schedule
The clearly defined vesting schedule allows you to plan your finances around expected vesting events. This predictability helps with budgeting, tax planning, and achieving financial goals.
Guaranteed Value
Unlike stock options that can become worthless if the stock price falls below the strike price, RSUs always have value as long as Amazon stock has value. Even if the stock price declines, your vested RSUs will still be worth something.
Direct Participation in Amazon's Growth
As Amazon's stock price increases, so does the value of your RSUs, allowing you to benefit directly from the company's success. This creates a tangible connection between your work and your compensation.
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Strategic Considerations for Your Amazon RSUs
1. Immediate Sale vs. Hold Strategy
One of the biggest decisions is whether to sell your RSUs immediately upon vesting or hold them for potential future growth. Consider:
Sell immediately: Eliminates concentration risk, allows for immediate diversification, and removes the concern of Amazon’s stock price dropping
Hold for long-term: Potential for additional growth, possible lower tax rate through long-term capital gains, but comes with increased risk if Amazon underperforms
2. Diversification Planning
Many Amazon employees have a significant portion of their wealth tied to company stock through RSUs. This creates concentration risk, since both your income and investments are dependent on a single company's performance.
Consider selling a predetermined percentage of vested RSUs to reinvest in a diversified portfolio. This helps mitigate the risk of over-concentrating while still saving a portion of your shares to (hopefully) grow in value over time and capture the lower long-term capital gains rate.
3. Aligning RSU Strategy with Life Goals
Your approach to RSUs should align with your broader financial goals:
Short-term goals (1–5 years): Consider selling vested RSUs to fund near-term objectives like home purchases, debt repayment, or emergency funds.
Mid-term goals (5–15 years): A balanced approach of selling some shares while holding others may be appropriate.
Long-term goals (15+ years): Consider tax-efficient strategies for RSUs earmarked for retirement or generational wealth transfer.
4. Tax Optimization Strategies
Several strategies can help minimize the tax impact of your RSUs:
Adjust your withholding rate to account for your actual tax bracket, avoiding underpayment penalties.
Consider timing additional income (like bonuses) to avoid tax bracket spikes in heavy vesting years.
Explore charitable giving strategies using appreciated Amazon shares.
Contribute to tax-advantaged accounts like your Amazon 401(k), HSAs, and the mega backdoor Roth program to offset your RSU income.
5. Working with a Fiduciary Financial Advisor
Managing RSUs effectively can get complex as your grants accumulate and your finances evolve. A fiduciary financial advisor can provide significant value in several key areas:
Objective guidance: A fiduciary advisor is legally required to act in your best interest, providing unbiased recommendations free from conflicts of interest.
Holistic planning: Professional advisors can incorporate your RSU strategy into your broader financial plan, ensuring alignment with retirement planning, tax strategy, and other financial goals.
Tax optimization: Advanced strategies for tax-efficient RSU management become more critical as your equity compensation grows.
Evolving strategy: As your career progresses and you approach retirement, your RSU management will need to change. An advisor helps adapt your approach through various life and career stages.
When selecting a financial advisor, make sure they have experience with Amazon's compensation structure and understand the nuances of the company's RSU program. The right advisor relationship can substantially increase the long-term value you receive from your equity compensation.
How TrueWealth Financial Partners Can Help
At TrueWealth Financial Partners, we specialize in helping professionals like you optimize their finances and save more for retirement. Our team has extensive experience with Amazon's compensation structure and vesting schedules, allowing us to provide tailored insights just for you. Schedule a free consultation
Ready to optimize your Amazon RSU strategy? Schedule a free consultation with one of our fiduciary financial advisors today.
FAQs About Your Amazon RSUs
Does Amazon match contributions on RSUs?
No, Amazon does not match or provide any additional shares based on your RSU grants. The company's 401(k) matching program is separate from the RSU program. However, your RSU grants are given as part of your compensation package and require no contributions or purchases from you.
Are Amazon RSUs considered part of my total compensation package?
Yes, Amazon RSUs are an integral part of your total compensation package. When Amazon makes you an offer, they typically include the estimated value of your RSUs alongside your base salary.
What happens to my unvested RSUs if I leave Amazon?
If you leave Amazon, any RSUs that have not vested are forfeited. Only shares that have already vested are yours to keep.
How often does Amazon grant refresher RSUs?
Amazon typically grants refresher RSUs annually during performance reviews. This usually occurs in the first quarter of the year. However, new employees usually don't receive refresher grants at their first review.
Can I change the tax withholding percentage on my RSUs?
Yes, you can change your federal tax withholding rate by logging into amazonstock.com and navigating to the Stock Awards section. The default rate is 22%, but many employees choose a higher rate to avoid underpayment penalties.
What is the difference between "sell to cover" and "sell all" options?
"Sell to cover" sells only enough shares to cover your tax obligation, leaving you with the remaining shares of Amazon stock. "Sell all" sells all your vested shares immediately, providing you with cash (minus taxes).
Can I transfer my vested Amazon RSUs to another brokerage account?
Yes, once your RSUs vest, you can transfer the shares to an external brokerage account. You'll need to initiate this through Fidelity's platform and provide your external brokerage account information. (Keep in mind that this doesn't change the tax implications. You will have already paid income tax on the shares at vesting.)
Do I need to report my RSU income separately on my tax return?
No, you typically don't need to report RSU income separately on your tax return. The income from vested RSUs is included in your W-2 form in Box 1 as part of your wages. However, if you sell the shares, you'll need to report the capital gain or loss on Schedule D and Form 8949 of your tax return.
How do I determine the cost basis for my Amazon shares when I sell them?
The cost basis for RSU shares is the fair market value of the shares on the vesting date (the same value that was reported as income on your W-2). Fidelity tracks this information for you, and it should be available when you initiate a sale.
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