Equity compensation
restricted stock unit
A restricted stock unit (RSU) is an employer promise to give you company shares after you meet a vesting rule. The value is generally taxed as pay when the units vest.
A restricted stock unit (RSU) is a promise from your employer to deliver company shares, or their cash value, once you meet a vesting rule, such as staying for a set time. You have no shares until the units vest.
The IRS Chief Counsel's office says that, in general, equity compensation such as restricted stock and RSUs are wages subject to federal income tax withholding. So the value at vesting generally counts as pay.
For example (round numbers): 1,000 RSUs vest when the share price is $50. The $50,000 value is treated as wages for that year. Your employer may withhold some tax by selling part of the shares. Withholding is not always the same as the tax you owe, so check the gap with your CPA. If you later sell the shares for more than $50 each, the gain is taxed under the capital gain rules.
Why it matters: RSUs can add a large block of income in one year and a large block of one company's stock in your portfolio. Both affect your giving, your tax return and your plan. Some families give shares they hold at a gain, which is covered under donating appreciated stock.
Read our guide to RSUs, ISOs and ESPPs and our year-end RSU checklist.
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