Holloway Guide ToEquity Compensation
Common questions covered here
What are the tax implications of restricted stock units (RSUs) as compensation?
When am I required to pay taxes on my RSUs?
How are RSUs taxed?
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Taxes on RSUs

If you are awarded RSUs, each unit represents one share of stock that you will be given when the units vest.

  • Here’s the tax summary for RSUs:

  • caution When you receive your shares, you are taxed on their value at that time.* If you are an employee, this means you may have to write a check to the company to cover your income and employment tax withholding. Often, for U.S. employees, companies will withhold the tax in the form of shares such that no action is required by the employee at vesting time.*

  • If you receive an RSU when the stock is of little value, you cannot elect to be taxed on the value of that stock when you receive the RSU—you pay taxes at vesting time, based on the value of the shares at that time.

  • caution RSUs present some big problems in private companies:

    • You will owe tax when you receive the shares, even though they are illiquid.

    • You can’t minimize the tax impact of an increase in value of the underlying shares between the date you receive the RSU and the date it is settled.

    • If you are an employee you will have to write a check to the company to satisfy your income and employment tax withholding.

  • caution RSUs are less attractive than stock options from a tax point of view because you cannot make an 83(b) election with respect to RSUs. By contrast, if you receive a stock option, as long as it’s priced at fair market value you will have no income upon receipt of the options, and your income tax and employment tax consequences will be deferred until you exercise, an event under your control for the most part.

Tax Comparison Table

Table: Comparing Taxes on Types of Equity Compensation

This table is a summary of the differences in taxation on types of equity compensation.

Restricted stock awardsISOsNSOsRSUs
Tax at grantIf 83(b) election filed, ordinary tax on FMV. None otherwise.No tax if granted at FMV.No tax if granted at FMV.No tax.
Tax at vestingNone if 83(b) election filed. Ordinary tax on FMV of vested portion otherwise.No tax if granted at FMV.No tax if granted at FMV.Ordinary tax on current share value.
Tax at exerciseAMT tax event on the bargain element. No ordinary or capital gains or employment tax.Ordinary tax on the bargain element. Income and employment tax.
Tax at saleLong-term capital gains tax on gain if held for 1 year past when taken into income. Ordinary tax otherwise (including immediate sale).Long-term capital gains if held for 1 year past exercise and 2 years past grant date. Ordinary tax otherwise (including immediate sale).Long-term capital gains if held for 1 year past exercise. Ordinary tax otherwise (including immediate sale).Long-term capital gains tax on gain if held for 1 year past vesting. Ordinary tax otherwise (including immediate sale).
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Stock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for employees and managers.

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Length: 80 pages
Edition: e2.1.0
Last Updated: 2021-02-19
Language: English
ISBN (Holloway.com):
978-1-952120-03-9

Equity Compensation

by Joshua LevyJoe Wallin
Stock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.

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