Restricted stock units are a way an employer can grant company shares to employees. The grant is “restricted” because it is subject to a vesting schedule, which can be based on length of employment or on performance goals, and because it is governed by other limits on transfers or sales that your company can impose.
Do you have to pay for restricted stock?
Those plans generally have tax consequences at the date of exercise or sale, whereas restricted stock usually becomes taxable upon the completion of the vesting schedule. For restricted stock plans, the entire amount of the vested stock must be counted as ordinary income in the year of vesting.
Do employees pay for restricted stock?
A restricted stock unit (RSU) is a form of compensation issued by an employer to an employee in the form of company shares. Upon vesting, they are considered income, and a portion of the shares is withheld to pay income taxes. The employee receives the remaining shares and can sell them at their discretion.
How long after grant does restricted stock awards usually expire?
RSUs are converted to shares once they are vested, and therefore do not expire. Options have a stated expiration date (often, but not always, 10 years from the date they are granted.)
How are restricted stock grants taxed on income?
Restricted stock is taxed on the value at vesting unless you file a timely Section 83 (b) election to be taxed on the value at grant. Alert: When you receive an outright vested stock grant in exchange for your services (legal, marketing, etc.), this is income you must report on your tax return.
What happens when you accept a restricted stock award?
Once an employee is granted a Restricted Stock Award, the employee must decide whether to accept or decline the grant. If the employee accepts the grant, he may be required to pay the employer a purchase price for the grant. After accepting a grant and providing payment (if applicable) the employee must wait until the grant vests.
How does restricted stock work in a startup?
Startup, Inc. agrees to grant each founder 10 shares of restricted stock as compensation. Each restricted stock is subject to a 5-year vesting period, with the first restriction lapsing at the end of the first year. At the grant date, the stock is worth $1 per share.
How are restricted stock plans ( RSUs ) taxed?
The taxation of RSUs is a bit simpler than for standard restricted stock plans. Because there is no actual stock issued at grant, no Section 83(b) election is permitted. This means that there is only one date in the life of the plan on which the value of the stock can be declared.
