Restricted Stock Units Made Simple (Part 1): Understanding The Core Concepts

Restricted stock units (RSUs) have become the most popular alternative to stock options. While RSUs share many of the same issues as restricted stock, there are differences, and it is important to understand the basics of RSUs in their own right.

Restricted Stock Units Made Simple (Part 2): Taxation

The taxation of RSUs generally resembles that of restricted stock but carries some important differences.

VIDEO! Restricted Stock & RSUs (Part 1): Key Aspects To Know

Presented by the editor-in-chief of myStockOptions.com, this engaging video covers the fundamentals of restricted stock, restricted stock units (RSUs), and performance shares to help you make the most of these grants. This video covers key concepts, such as vesting schedules and understanding your grant’s value. Running time: 4:37

VIDEO! Restricted Stock & RSUs (Part 2): Taxes And Related Key Decisions

Presented by the editor-in-chief of myStockOptions.com, this engaging video covers the basic tax treatment of restricted stock and restricted stock units (RSUs), including the tax rates, the timing of taxation, and withholding. Running time: 3:57

Restricted Stock 101: Five Essentials Of Restricted Stock & RSUs

While restricted stock and RSUs are relatively straightforward, they have technical aspects you must understand to make the most of them. Learn the essential facts of restricted stock and RSUs, including basic concepts, vesting schedules, and tax treatment.

Stockbrokers’ Secrets: Restricted Stock And Performance Shares

Many companies have turned away from stock options and begun to make outright stock grants that must vest before the shares can be issued. For employees, these grants have added a new layer of complexity to their equity compensation. This article presents six questions I get all the time from clients who have received restricted stock, restricted stock units, or performance shares.

What are the top 10 questions I should ask about my grant of restricted stock or RSUs?

You should know the answers to the following questions. Understanding the topics involved will help you make the most of your restricted stock/RSU grant and prevent costly mistakes.

What is the difference between restricted stock and restricted stock units (RSUs)?

While they are siblings, they have important differences, as explained below and as shown by the chart. The traits of restricted stock units include the following.

Does this website’s content on restricted stock also apply to restricted stock units (RSUs)?

Generally, yes, with two exceptions. First, with RSUs you cannot.

What is the difference between restricted stock and performance shares or units?

Shares of restricted stock are issued up front at grant, but you do not own them outright and cannot sell or transfer the shares until the time-based restrictions lapse. With standard restricted stock units the situation is basically similar, while with performance shares your company sets goals that must be met, such as.

When and how is a grant of restricted stock or RSUs taxed?

The timing of taxation is different than that of stock options. You pay tax at the time the restrictions on the stock lapse. This occurs when.

UPDATES! Do I get dividends with restricted stock units? How are they taxed?

When a company pays dividends on outstanding shares of stock, it can choose.

Why do many companies grant restricted stock and RSUs instead of stock options?

The compensation philosophies of companies are continually changing under the influence of many factors, from accounting rules to.

Which do companies grant more often: restricted stock or restricted stock units (RSUs)?

Starting with the broad grants of RSUs at Microsoft and Amazon, recent corporate practices and survey data suggest it is more likely that your company will grant you.

Why would my company grant me restricted stock units (RSUs) instead of restricted stock?

Each type of grant has its supporters and its own benefits. By using RSUs, the company accomplishes the following.

Why do companies shift from granting stock options to granting restricted stock units, and then sometimes back again to granting at least some stock options?

Surveys indicate that many companies use a variety of grants, including both stock options and restricted stock units (RSUs) in tandem. There are many possible reasons why a company might switch from options to RSUs.

With restricted stock units and performance shares, can I defer the delivery of the shares at vesting? How is this taxed?

Delaying the delivery of RSU shares (and thus ordinary income taxes) at vesting depends on whether your company has a provision for this in its stock plan. The deferral needs to be structured correctly, as otherwise it can lead to tax penalties. Deferral is not.

My stock will be released or delivered at vesting. What does that mean?

Releasing restricted stock is the process by which your company transfers or frees shares to you when.

W-2 diagram! What will my W-2 show after the vesting of restricted stock units?

Restricted stock units result in ordinary income to you. This occurs when.

Form 8949 and Sch. D diagrams! When restricted stock units vest, my company automatically sells or withholds shares to cover the taxes. Do I need to report these shares on my Form 8949 and Schedule D?

You should definitely report a sale for taxes at vesting if you received a 1099-B that shows the proceeds. The IRS will.

Form 8949 and Sch. D diagrams! How do I report a sale of shares from restricted stock units (RSUs) on my federal income-tax return?

You need to complete Form 8949 and Schedule D for the year of the sale of your stock and file it with your Form 1040 federal income-tax return. You do this even if.

How does the taxation of restricted stock and restricted stock units differ?

Technically, different tax code sections apply, though under most grants the tax results are similar. With restricted stock you are taxed at vesting or earlier at grant if you make a timely Section 83(b) election. Most experts believe that with RSUs you cannot make.

What is a lapse election, and why do I need to make it before the restricted stock or restricted stock units vest?

The lapse is the end of the restriction that prevented the shares from vesting and being transferred to you. The lapse election is the method by which you choose withholding methods and what will be done with the.

I am eligible for vesting acceleration at retirement but have not actually retired, so why has my restricted stock been taxed? Is the treatment different for RSUs?

These provisions raise tax complications for both restricted stock and RSU grants, though the issues vary. For tax purposes it does not matter that you must actually retire to vest the shares. With restricted stock, taxation is triggered when the grant is.

Is the payout of restricted stock units ever delayed when vesting is accelerated?

A delay in RSU payout can occur. This depends on the reason for the acceleration, whether you are ending your employment with the company, and your position in the company.

When does my capital gains holding period begin for grants of restricted stock and restricted stock units (RSUs)?

For restricted stock, it begins on the day after vesting, unless.

Can I make a Section 83(b) election for a grant of restricted stock units (RSUs)?

Restricted stock and RSUs are governed by separate sections of the US tax code. Most experts say that you.

Can my company convert restricted stock into restricted stock units?

Section 409A on nonqualified deferred compensation has created uncertainty.

As a director, can I elect to take part of my retainer as deferred stock units?

Receiving deferred stock units, or RSUs that let you delay the delivery of shares (and thus taxes) at vesting, depends on.

I am a senior executive. When and how do I make my Form 4 filing for restricted stock, restricted stock units, and performance shares?

Within two business days of any grant, you file Form 4 electronically under the SEC’s Section 16 rules. However, while the filing rules for these grants are similar, there are some important differences that depend on the performance goals used.

UPDATES! Will my company be able to take a tax deduction for the value of my restricted stock, restricted stock units, performance shares, or stock options if my compensation already exceeds $1 million?

This depends on what triggers vesting. Section 162(m) of the tax code limits your company’s deduction to $1 million unless a senior officer’s compensation over this amount meets the performance-based exception. Stock grants are structured to meet this by.