News

Equity Compensation Part 4 ‐ Restricted Stock Units

What They Are

Restricted Stock Units (“RSU”s) are considered a hybrid of stock options and restricted stocks. RSUs are generally granted by an employer either at a specified point in the future, after a specified amount of time, or after required performance milestones are achieved. If the employee does not satisfy the vesting requirements, then the shares are typically forfeited. Upon vesting, the employee’s rights become non-forfeitable and actual payment occurs under a distribution schedule. If the plan allows, employees may also delay their right to receive actual stock to a later date. The employee generally will not have dividend and voting rights until the actual shares are issued.

What to Know

An employee with RSUs will not be taxed on those units at the time of the grant. The employee will be taxed at vesting. Upon vesting, the shares are considered income, and a portion of the shares are withheld to pay income taxes. The amount of income subject to tax will be the fair market value of the grant at the time of vesting. The amount included in the employee’s income will be subject to ordinary federal income tax withholding and FICA/Medicare tax withholding at payment. This income will be reported on Form W-2 for employees and Form 1099-MISC for non-employee recipients. The employer will receive a tax deduction equal to the employee’s income recognition offset by FICA/Medicare liability. The employee receives the remaining shares and can sell them at any time. The IRC 83(b) election is not available for RSUs.

Contact Hone Maxwell LLP today with questions about Restricted Stock Units and related tax planning.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

Latest Post

SAN FRANCISCO

870 Market St., Suite 588
San Francisco, CA 94102
415.765.1754

SAN DIEGO 

3465 Camino Del Rio South, Suite 400
San Diego, CA 92108
619.980.4476

IRVINE

4 Venture, Suite 320
Irvine, CA 92618
949.838.7807

TIJUANA

Centro Corporativo Dayco
Blvd. General Gustavo Salinas #11050
Suite 602, Col. Aviacion
22014 Tijuana, B.C., Mexico
+52 (664) 504 6415

Newsletter Signup

Stay updated on the latest tax laws.