Tuesday, June 9, 2020

RSU 101

RSUs (Restricted stock units) are a form of stock-based employee compensation. RSUs give an employee an incentive to stay with a company long term and help it perform well so that their shares increase in value.

RSU has grant date and vest date, usually employer grants an amount of RSU with a vesting period of four years in bay area. Once vested, the RSUs are just like any other shares of company stock.

Unlike ESPP or stock options, there are no any tax advantages to hold vested RSUs.

There is likewise no tax reason to hold RSU shares after the vesting date, because RSUs are taxed as they vest. The employer will withhold federal and state income tax on RSU income at the mandatory “supplemental” withholding rates, which are different from regular income tax withholding rates. For tax purposes the entire value of vested RSUs must be included as ordinary income in the year of vesting.

RSUs aren't eligible for the Internal Revenue Code (IRC) 83(b) Election, which allows an employee to pay tax before vesting, as the Internal Revenue Service (IRS) doesn't consider them tangible property.

With that, it’s best to sell your vested RSU shares as soon as they vest, and add the proceeds to your well-diversified investment portfolio.

However, if you believe your company stock price will go up, you can choose to hold it to save your keyboard typing time. And, if you are considered a company insider or possess material non-public information about the company, you may need to hold your RSU shares until you are no longer in danger of violating insider-trading laws.

No comments:

Post a Comment