What is an rsu stock option
Information is provided 'as is' and solely for informational purposes, not for investment purposes or advice. Which is better fo Which is better for the employee? Here is table that compares both: Then they are yours to hold or sell Taxation In most cases options are taxed as income at the time of exercise, regardless of whether shares are sold or held.
Here are the questions I usually want to find out about the employee and the company before making a recommendation: How high of a risk tolerance do you have? What tax bracket are you in? How stable has the stock performed over the last 3, 5, and 10 years? Compared to the stock market? How are the fundamentals of the stock right now?
How does the sector that the stock is part of look for the future? Recommended Articles, Handpicked for you Financial Planning. Advice by Topic Business Financial Planning Comprehensive Financial Planning Cross Border Financial Planning 1.
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Your taxable income is the market value of the shares at vesting. If you have received restricted stock units RSUs , congratulations—this is a potentially valuable equity award that typically carries less risk than a stock option due to the lack of leverage.
Unlike stock options, which can go "underwater" and lose all practical value with a falling stock price, RSUs are almost always worth something, even if the stock price drops dramatically. However, while the concept of RSUs is simple, there are technical points in these grants that you must understand to make the most of them.
This article presents the essential facts of RSUs, including the basic concepts, the workings of vesting schedules, and the tax treatment. 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.
You typically receive the shares after the vesting date. Only then do you have voting and dividend rights. Companies can and sometimes do pay dividend equivlent payouts for unvested RSUs. Unlike actual dividends, the dividends on restricted stock will be reported on your W-2 as wages, unless you made a Section 83 b election, so they won't be eligible for the lower preferential rate currently available in tax year on qualified dividends.
Unlike stock options, RSUs always have some value to you, even when the stock price drops below the price on the grant date. Vesting schedules are often time-based, requiring you to work at the company for a certain period before vesting can occur. You are granted 5, RSUs. At the first anniversary of your grant date and on the same date over the subsequent three years, 1, shares vest. Once each portion vests, you can sell the shares. The example above uses a "graded" vesting schedule, i.
The vesting schedule can also or instead be performance-based, e. Most graded-vesting grants have restrictions that lapse over a period of three to five years. In addition to providing for regular vesting, a graded vesting schedule may, alternatively, have varying intervals between vesting dates: You are granted 20, RSUs.
The remainder 15, vest every month a month over the next two years. At newly public companies, grants made before the initial public offering IPO may also require a liquidity event i. Once the liquidity event has occurred, the shares vest days later. Job termination almost always stops vesting. The only exception occurs in certain situations when vesting may be allowed to continue or may even be accelerated e. With RSUs, you are taxed when the shares are delivered, which is almost always at vesting.
You have compensation income subject to federal and employment tax Social Security and Medicare and any state and local tax. That income is subject to mandatory supplemental wage withholding. Withholding taxes, which for U. The most common practice is taking the amount from the newly delivered shares by surrendering stock back to the company.