Restricted Stock Units: The Basics & Taxes
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- čas přidán 15. 07. 2024
- Restricted Stock Units, or RSUs, are one of the most common forms of equity compensation for tech professionals.
What does it mean to be restricted?
How is it different than actual stock?
What happens at vesting (and tell me again what "vesting" is...)?
When does it trigger taxes, and what kind?
What should I think about when deciding whether to sell vs. hold?
I use an example to explain how RSUs work and a couple of things to think about when deciding what to do with them.
www.javawealth.com
#personalfinance #money #stockcompensation
This was extremely valuable man. The best and most retainable explanation I've heard yet.
Seriously great video. I read a bunch of explanations on various sites, but this broke it down perfectly.
Glad to hear it!
Very informative! Keep up the good work!
Helpful, thank you! The thoughts on sell or not was very useful to evaluate for myself.
Very helpful stuff Mike! Thank you so much!
Brief and on point! Thank you
Excellent explanation! Thank you!
Best video I found on the topic. Thank you!
I appreciate it 👍
Thank you so much for this - I wish employers would set up learning opportunities for those folks who get RSUs and do not understand them as not everyone is financially savvy. You broke it down so easily and I am forever grateful!
Thank you so much. This was the best explanation I've come across by far. You also answered a question I had regarding whether or not to keep the shares or sell them once I receive them. After listening to your explanation regarding concentration risk, I'll probably sell around 80% of them in order to diversify.
Excellent, glad it helped!
This was extremely helpful!
Very good video. Thanks for the breakdown
Excellent video !! Thanks.
Very helpful, thanks!
crystal clear, thx from France!
thanks, great video and explanation
Thank you for sharing. It is very informative.
It’s crazy that the government taxes RSUs like this… it should be capital gains so that ordinary employees can benefit like owners.
Thank you I needed this , new subscriber btw
Very useful, thank you very much
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@Dunker762 However, if you do not have access to a professional like JUDITH ANN PEACE, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments
@@Lourd-Bab Oh please I’d love that. Thanks!
@@Dunker762 Judith Ann peace is her name
Lookup with her name on the webpage.
Thanks for this video
My company is doing the cash bonus option and I can't wait until my 1st grant date!
this helped me so much
Would love to see it explained where they offer a monetary value rather than a specific number of RSUs. Recently received an offer where the RSU was offered as “55k over 4 years”
It would be the same they would just purchase 55k worth of stock based on the price of when you start depending on their policy and just provide you those shares in the 4 year period.
A monetary value would just be money.
hello. Did you get a solid answer for this?
@@raradwan123 Example:
100k over 4 years
Stock price on the day of the grant (or start date or previous month's average or whatever the company chooses) = $ 100
Number of RSUs allocated = 100k / 100 = 1000
When they grant you RSUs based on a monetary value, the number of RSUs are determined by the market value that has been chosen by the company. When they grant you RSUs based on a number, they just give you that many RSUs.
What company is offer that amount ?? I'm curious.
Thank you so much. This is really helpful! I love how it's so easy to understand for people like me 😂
Thanks, I'm glad you found it helpful.
Thank you; this answered all of my questions with my sign on RSU award. One question is it normal for a company to provide a target bonus and sign-on RSU award?
Great video. My only critique would be that, the stock price probably does matter when you are granted your RSUs if your RSU's are determined as a percentage of your salary or as a dollar value.
Example: You get a job offer for $100,000 and your RSU is matching your salary, vested over 4 years. The stock price for ABC company is $100 when your RSU is granted, which means you will receive 1000 shares.
Yep, good point. I primarily focused on the tax consequence side rather than how the number of RSU granted is determined.
Would you invest 13,000 $ to your company's stock?
Brilliant question!
This was super helpful. One question I have is if I am in a lower federal income tax bracket than the standard supplemental 22% withholding rate that companies seem to use, should I be expecting to get money back when I file my taxes? Or for compensation like this does it work differently?
If you're actually in the 10-12% marginal bracket, then yes, more will be withheld than necessary & you'll get that $ back when you file. This assumes that enough is already being withheld from your regular paychecks.
At the end of the day, all of your withholdings from pay & bonus is going to the same place & is reconciled against your overall tax liability.
Hi! This is super helpful. Thanks for the video. One Question plz - When I sale these 13k shares in future, will my basis for these 13k shares should be 20k (gross amount on my w2 that I paid taxes on) or will the basis be 13k only?
Thank you so much!
Great video! Clear and to the point explanation of the RSU process. My one question is if we can sell our vested RSUs if the company is private?
Generally, no. Private company stock needs some type of liquidity event (company goes public, does a purchase offer, is acquired, etc) in order to sell your shares. There are also secondary markets/platforms that you may be able to sell your shares, but that depends on possible restrictions by your company, the demand for the stock and possibly how much you have available for sale.
@javawealth thanks for your prompt response!
The beginning price would matter bcs that’s what determines how many shares you get
For Ex a company will say we will give you $50k when being hired and depending on share price point when starting will determine how many shares you get
Thanks for the video!
I have a question though,
If the stocks are being viewed as a bonus - then you are being taxed as part of your income. So whether you sell the shares or not there is an additional income tax on the income based on this amount?
additionally there will be in the future a capital gains tax on the difference of the amount?
hence if someone doesn't have money on the side to pay the taxes they should sell some of those shares and become liquid to pay? (and of course incur a bit extra taxes for the sale if there is a price difference)
That's right. It's taxed as income even if you don't sell your shares and you may have additional taxes owed if you're in a higher bracket and the default withholding doesn't cover it. Also correct that there would be capital gains / losses when you sell, relative to the price at vesting.
If it's performance based is it better to sell them and what if you don't sell them on the date they vest?
Another risk of holding vested RSUs is that the stock price could fall 50% or more. I still have to pay taxes on last year’s inflated stock price before it fell. In my case, it’s thousands of dollars that was added on my income and raised my tax bracket that I will potentially never see again. The government still takes their cut and taxes me at the higher amount. Tax loss harvesting would take years to recover the amount that I am being over taxed since it’s capped at $3,000.00 a year.
Correct, which is why the question to ask yourself is whether you'd go buy your company stock w/ a cash bonus. Holding that stock carries all of the related investment risks with it.
I just did a live stream around how falling company stock affects your equity comp, available here: czcams.com/video/VtmbNizRI_c/video.html
To your last comment, you can also use that loss to offset other capital gains that you'd realize in the same year. The $3K cap is for offsetting other types of income (e.g. wages)
@@JavaWealth thank you!
Great video, thank you so much.
I just have a few questions, base on your example, there are 6k left that they will invest at a certain date if you stay at the company. Lets say the grant date is September and the first vested period is also september (same month), the future vested date will be sept 2023, sept 2024 and sept 2025. What's gonna happen with the 6k RSU's if you left the company before the next vested date? Will the company going to take back all the RSU's left? Thanks in advance
Generally, you'll give up your unvested RSUs if you voluntarily quit. There can be other outcomes depending on why you're leaving (disability, retirement, severance, etc.). Check the termination clause in your grant document to be sure.
@@JavaWealth thank you
I have RSUs which vested in 2020. Shares were used to cover tax withholdings (sell-to-cover) on the vesting date and I've sold the net shares 2 months after the vesting date (in 2020). I've received a 1099-B from the broker and it lists the 1) sold sell-to-cover shares on the vesting date; 2) sold net shares 2 months after the vesting date. To me it is clear that I need to report the capital gains linked to the sold net shares (price/share on the vesting date - price/share of the sales date x # of shares). What is not clear to me, is if I also need to report the sell-to-cover shares on Form 8949? If so, do you take '0' as a cost basis (that's included on my 1099-B) or the price/share on the vesting date (fair market value)?
I have the same question
First, clarification that this is not to be considered tax advice and to consult your tax advisor: Full disclaimer here: www.javawealth.com/disclaimer
If your 1099-B shows the sell-to-cover shares, the IRS will also receive a report of the sale and your Form 8949 should match. The basis of that sale is the FMV of the shares on the vesting date. If your 1099-B shows cost basis of '0', it most likely also has something that says "basis not reported to IRS".
Great video. In summary, the government taxes me on stocks that I've received after paying taxes on them and if I wait any longer to sell them I simply have to - you guessed it - pay taxes on the sale.
Although it may feel like you're taxed 3x, no money is ever taxed twice. It's treated the exact same as a cash bonus or paycheck, just the mechanics are slightly different.
And when you sell, you pay capital gains taxes only on the gain if the stock price went up after it vested, just like you would with any other investment. Likewise if the stock went down & you sold, you can claim a capital loss & lower your taxes.
Glad you enjoyed the video
@@JavaWealth But why do I get taxed when the RSU vests in the first place ? This sounds worse than stocks if anything because I'm initially paying tax on it when it vests and then again when I sell stocks on the vested amount 🧐
The same reason you're taxed on income or a cash bonus that is paid to you. Once an RSU vests & becomes a stock that you own, you have what's called "constructive receipt", meaning you now have full control & ownership of that asset.
What happens when your company withholds shares but the total price of those shares are bigger than your tax amount? Ie your shares are on each 1k you got 4 shares and your tax income is about 30% so your company withholds 2 shares (2k) to pay 1.2k usd. Do you lose the other 800 usd ? Is there a way to recover them? Thanks for your video !
Thank you very much. How is about the case that you keep and sell these shares 2 years after vesting? Let's assume you sell at the same price. Do you have to adjust your cost basic?
Cost basis is set when the RSUs vest (in this video's example, at $10/share). So if you sell them 2 years later still at $10/share, you'd have no capital gain/loss.
@@JavaWealth Thank you. Please help me in more detail. The company already got the tax (in this example $5k). If we don't sell the stocks in the same year; will $5k be returned to us when we file tax? If it is not, then 2 years later, when we sell the stocks, we have to adjust $5k ($10/share) as our cost basic since the 1099-B will give us 0 as the cost basic, right?
How can I perform my calculations if the Company didn't grant me in terms of number of stocks but instead gave me a value in USD?
I am new at RSUs. I am trying to understand what does "Stock Offset" on my paystub mean. I had $89,000 of RSUs vested through out the year. On my paystub I also see "Stock offset " in the deductions for last year in the amount of $64,000. What is it? How to deal with it. What is its significance? You also mentioned brokerage sold a particular part of RSU stock to pay for taxes? I am really trying to understand what I am dealing with and how to correctly handle the RSUs. Thank you.
The stock offset is usually the income realized from your vested RSUs minus what was withheld for taxes. It's just a way for payroll to reconcile the earnings being reported vs. what was actually paid to you through your paychecks.
So in your example, you got $89K worth of your company stock, they sold $25K worth of that to withhold for taxes & the $64K came to you via the remaining stock in your brokerage account.
Both the income and withholdings from RSUs would be included in the totals in your W-2.
Hope that helps!
Thank you!!!!!!!!!
Hello,
Last year my company gave me some RSU. They sold some of the stocks to cover my taxes. During 2022 I haven't sold any stocks and did 0 transactions. But my trading account shows a capital gain. The stocks my company sold to cover my taxes show as my capital gains. I'm not sure if is it right or not. Can you help me to understand this.
Thank you
Helpful video! Per your example, say the first year I receive 2,000 shares at $10 and the following year the stock is at $15 do I receive the next 2,000 shares at the $15 price?
Yep, that's right. With RSUs, the amount of "bonus" income you realize each year is 100% tied to your company's stock price when it vests. So in your scenario, this year's bonus would be $20K (2,000 x $10) & next year's would be $30K (2,000 x $15).
Thanks Mike! What is someone offers a dollar figure RSU vs number of shares when you join?
In that case, they'll use the stock price when the RSUs are granted (or some average of the last X days) to convert to a # of RSUs.
E.g.
- "You're awarded $50K of RSUs, vesting annually over 4 years"
- The company stock price is $50/share
- You'll get a grant of 1,000 RSUs. 250 RSUs will vest each year.
- The actual value of those RSUs (& earned income) is driven by the stock price on the dates that they vest.
When your employer sells RSU shares to cover withholding, do they report that withholding on the W-2 in the same box as withholding for wages?
yes, both RSU wage income and the corresponding withholdings should be included in the same W-2 boxes.
On proxy statements, what's the difference between performance shares and PSUs? Rsu awards automately reflected in one's Common Stocks. How does one track vested PS/PSUs in CS?
Performance shares & PSUs are very similar to restricted stock & RSUs, but that vesting is tied to performance targets set by the company (shareholder return, sales goals, etc.). The difference between RS/PS vs. RSU/PSU mainly come down to whether you have voting rights and are paid dividends before they vest.
Hope that makes sense!
@@JavaWealth thanks, what about TRSU. are they considered RSU or PSU?
I'll be honest, I've never heard TRSU. I would defer to your grant document on vesting details.
Would you mind if I messaged you about some specifics with regards to my first years RSU, I am still a little confused as to what has happened😢
Can you talk about what happens for taxes when the price is below the RSU grant price? Is it considered a loss?
By RSU grant price, are you referring to the stock price when the RSUs vest? If so, then yes, selling the stock at a lower value would be treated as either short term or long term capital loss.
The stock price when RSUs are actually granted doesn't come into play when talking about tax treatment.
so if my company sells the stock or whitholds it for say 22% Federal tax (plus other state etc tax) and my tax bracket is say 30%.. I would just SELL some of the stock that was vested to me and keep that until tax time? I would not pay any other tax on that sell because there would not be very much capital gains?
Yes, one option is to sell some of your stock to cover the difference. You can also adjust your paycheck withholdings or use other cash. Whether you can keep the money until tax time vs. submitting an estimated tax payment to avoid an underpayment penalty depends on what's called Safe Harbor rules. I talk more about it in this video: czcams.com/video/wP2OagefSfk/video.html
I have a hard time interpreting my 1099b for rsu’s cause my company withholds 1/3 of my shares for taxes. Do I just need to report the capitol gains cause on my w2 it reflects earned income from my vested stock. If I enter total net proceeds from my stock sale on 1099b it wants to double tax me?!
You're right that your W2 will report the income related to your RSUs vesting. Your 1099-B reports the sales & any capital gain/loss. A common gotcha is the 1099-B will show a cost basis of $0, making it seem like your capital gain is the entire value of the stock & cause you to pay taxes twice on the same RSU money. Look for a Supplemental Information document, which will show an adjusted cost basis for you to determine your gain/loss.
What is the difference between stock awards vs option awards columns on summary compensation table?
VERY generally speaking, stock awards = RSUs, RSAs and option awards = ISOs, NSOs.
Does the value of RSUs usually get taxed as income on your W-2? I know most companies do partial sales to cover tax, but what is the risk of getting double-taxed on this value?
Yes, RSU income will show up in your W-2 wages. It gets taxed the same regardless of whether the company sells a portion to withhold for taxes or not.
I didn't mention this in this video, but there is a common mistake that happens during tax prep that would cause RSU income to be double-taxed, and that's because it gets reported twice. I mentioned that RSU income is included in the W-2 wages. But taxpayers will also get a 1099-B that shows the stock sale & will show a Cost Basis of 0, and mistakenly report that as all capital gains. This article goes into more detail: www.forbes.com/sites/brucebrumberg/2019/02/27/five-tax-return-mistakes-to-avoid-with-restricted-stock-compensation
Can you help me understand how the RSU share tax withholding would appear on a W-2? I am afraid that my shares are being withheld but the withholding doesn’t appear on my w-2 and I am paying taxes twice on them.
Generally speaking, both the income and tax withholding related to your RSUs are included in the total W2 wages / withholding numbers.
A big gotcha is that, when you sell your RSUs, your 1099 will show a cost basis of $0. If you use that $0, then you will get taxed twice on your RSUs bc it's also reported in your W2. But there is usually a supplemental document on your stock plan's account that shows the adjusted cost basis to use.
If it wasn’t graded, do you only pay taxes once you actually get the shares (at the end of 4 years)?
Correct. It's all based on when the RSUs vest. So if it's a "cliff" where they all vest at one time, that's when it becomes taxable income to you and when your company will withhold for taxes.
If I work for a company with shares that historically increase in value, is their an option to pay the taxes out of pocket to preserve as many shares as possible and what other considerations might go into that decision?
Your company may accept a withholding payment in cash. You can reach out to your stock plan admin for what options are available.
Or if you used that cash and bought shares of your company in a brokerage account, you'd be accomplishing the same goal for all intents & purposes (which begs the questions: If you're bullish on the company, why wait for when RSUs vest? Why buy just enough to replace the # of shares withheld for taxes?).
What about the Section 83(b) exchange? What if stock value goes down after vesting, do you report a loss on something that has been nothing but paper all along?
Answering the 2nd question first: The cost basis is set to the stock price the day that it vests. So if you hold onto the stock after it vests and then sell it for less than your basis, then it's a capital loss (long term if held > 1 year from the day it vests, short term if 1 year or less). I briefly mention it at 5:58.
83(b) elections apply to restricted stock awards, but you can't do it for RSUs. I plan on making a video that covers the 83(b) election (focusing more on early exercising ISOs since I honestly don't see restricted stock awards very often).
@@JavaWealth Thanks! This stuff is so confusing.
What happens if you are granted RSUs in a private company and cannot sell your shares?
It appears you'd still be required to pay tax even though the bonus you received cannot be realised as cash. In such a scenario, how is the value of the stock calculated?
Because of this exact issue, many private companies issue RSUs that have "double trigger" vesting, meaning it's not realized income until it hits both the date requirement & some liquidity event (like going public or being acquired). That avoids the need to pay tax unless you're also able to sell the shares. It also may mean you realize a ton of income in one year... not the worst problem, but something to plan for.
Here's my video on RSUs when you go public: czcams.com/video/6L_i38BPc8E/video.html
If they don't, then it could be tricky b/c you would have to pay taxes on money you can't get to. There is something called a 83(i) election that you can make to tell the IRS that you want to defer this RSU income for up to 5 years. The taxable value would be calculated using the FMV (often the 409A) when they vest.
@@JavaWealth
Thanks for your answer, it was helpful.
I am in the second category, it appears my company elected not to include a double trigger for the RSUs and staff leaving the company have to pay both the cost of the RSUs and the tax burden.
In Australia there is no equivalent to an 83(i) election however RSU tax works the same.
I have asked my company if they would consider extending a double trigger agreement to replace my current one - though they are under no obligation to and, given they have everything to lose, I would imagine they will decline.
Crazy that the better the company does, the less I am able to share in their success - even if I contributed towards it.
So do you pay tax also on the units the company sold on your behalf to pay payroll tax for you for the vested units?
Yes, you owe income tax & the applicable payroll (SS & Medicare) taxes on all of the RSUs. Just like you would for a cash bonus.
Are vested stocks included in adjust gross income?
Yes. The income from RSUs vesting is included on your W2.
So, using smart asset, I figured that my marginal tax rate is around 35%. If I sell $10k worth of RSUs right at the vest, $2.2k (22%) should have already withheld for me at the vest. My actual tax responsibility was $3.5k (35%). So this means that I would need to withhold $1.3k of what I sold to pay taxes at tax season.
If my usual tax return is about $1k, I'd now owe $300.
So on that sale of $10k, I actually keep $8.7k. If I didn't sell, I'd still be responsible for paying the $1.3k.
Are my math and reasoning correct here?
I.e., I'd need to always sell an extra 13% of my shares to pay for taxes at vest; I keep 87% of what I sell.
Hey Lenny, your last line is on the right track. If you're projecting to be in the 35% marginal bracket, then consider putting aside (or paying estimated taxes of) another 13% of the total RSU income to cover additional taxes.
Another way is to run a projection of your overall tax liability & estimated withholdings from paychecks, RSU income, etc. Then you'll have a better sense of any shortfall & whether you should pay estimated taxes throughout the year. You may consider hiring a tax professional to help with this.
@@JavaWealth thanks for the inputs. I'm going to talk with some tax professional and a financial advisor. I think I may be okay, but I'm going to make sure. I used the IRS withholdings calculator and determined that even with the sell, I shouldn't have additional withholdings required (unless the stock shot for the moon right after vest). My brokerage said that the RSUs should have the complete proper withholdings.
Tem em português ?
In what form should the tax withheld appear?
It'll usually be included in the withholding on your W2
Let's assume I have 400 RSUs granted 2 years back and 200 RSUs is vested. Now I want to quit the company, will I be able sell after quitting the company? Will vested RSUs be in my account?
Yes, when RSUs vest, they convert to shares that you own (& a % are sold to withhold taxes). So you still have access to the net shares if you quit.
And just for completeness, unvested RSUs are forfeited.
My company offered me an RSU of 1.5 lakhs with a vesting period of 4years, what does this actually mean?
Do we need to calculate the number of shares for Rs 1.5L based on the stock value on the grant date
I can speak to how it's generally done in the US, and it's similar to what you're saying. When RSUs are offered with a dollar amount, the number of shares that will be granted to you is determined using an average value of the stock in the days prior to the grant date.
my question is does the RSU have to be liquidated? can I hold the RSU until i want to sell it or do i need to sell it and get taxed?
Your RSUs become taxable income when they vest, regardless of whether you sell them or not.
From that point on, tax implications are just capital gains/losses the same as if you bought the stock outright on that day. Hope that makes sense!
@@JavaWealth ahh ok i see. since i payed tax already i dont have to in the future? unless if i made any capital gains right?
Sort of. The company will withhold taxes through selling some of your RSUs, but you may still owe more when you file your return if you're in a higher tax bracket.
But outside of that, yes, the only other tax you'd owe is if the stock went up from there and you sell it for a gain.
Wait a second, if you sell on the day they vest, then there's no capital gain taxes that need to be paid or any additional taxes taken at all??
Since the day they vest is technically when they are purchased, immediately selling them does mean that capital gains would be minimal.
Just to clarify the question of "additional taxes", there is the possibility that the amount withheld by your company isn't enough to cover your income taxes (the thing I talk about at 4:15 of this video).
So I will always pay ordinary income on the discount no matter how long I keep the shares?
Yes, in this example, the $20K is all considered ordinary income & will show up on your W2, even if you don't sell any of the shares you receive.
If you do keep your shares, your purchase date is the day they vested + your cost basis is $10. So from then on, it works just like any other investments where you'd create short-term/long-term capital gain/loss depending on when you sell & the price compared to your $10 cost basis.
What if your company do a stock split on your 2000 stocks promises
In a 1 out of 10 ratio ?
When a company's stock, let's call it NVDA :), splits 10-for-1, the RSUs will also 10x. So you'd go from 2,000 to 20,000 RSUs.
@@JavaWealth thanks, I’ll follow your channel 👍
This is the way to make good money if the salary isn't so good! After only a few years employees can cash out on big gains. Workers complain about Amazon but that's a pretty sweet giveaway especially if you're just starting out in the work force, talk about 6 figures in only 5 years.
Question - in your example, 700/2000 shares were sold to "sell to cover" would you then be taxed on the shares sold (700) as well? I'm assuming you wouldn't be taxed as the shares(700) were sold to cover the taxes to begin with?
Hi Gary, technically you're taxed on all 2000 shares, and we used 700 of those shares to pay for the tax bill.
To put it a different way, you got a $20K bonus, paid $7K in taxes, and take home $13K. There's no double-taxation going on or anything, just the way it works :).
Hi! This is super helpful. Thanks for the video. One Question - When I sale these 13k shares in future, will my basis for these 13k shares should be 20k (gross amount on my w2 that I paid taxes on) or will the basis be 13k only?
Thank you so much!
Why is convenient for companies to offer this type of awards instead of cash bonus?
Generally speaking, it's a way for companies to motivate employees to 1. stick around, and 2. have a vested interest in the company's success.