When you receive RSUs, they are not taxed immediately. Instead, they are taxed when they vest, which typically means when you have worked for a certain period of time or when certain performance goals are met. When they vest, RSUs are taxed as ordinary income, which means that they are taxed at your marginal tax rate. This means that depending on your tax bracket, the government will take a higher or lower percentage of them. Additionally, if you sell your vested RSUs, any profit you make from the sale will also be taxed as capital gains.
Vesting RSUs and Taxation
When RSUs vest, they become taxable income. The amount of tax you owe on vested RSUs depends on the type of RSU you have and your tax bracket. There are two types of RSUs: statutory RSUs and non-statutory RSUs.
Statutory RSUs
Statutory RSUs are taxed as ordinary income when they vest. This means that the amount of tax you owe on vested statutory RSUs is the same as the amount of tax you would owe on any other type of ordinary income, such as wages or salary.
The tax rate for statutory RSUs is determined by your tax bracket. The higher your tax bracket, the higher the tax rate you will owe on vested statutory RSUs.
Non-Statutory RSUs
Non-statutory RSUs are taxed differently than statutory RSUs. When non-statutory RSUs vest, you have the option to pay taxes on the vested amount at either the ordinary income tax rate or the capital gains tax rate.
The capital gains tax rate is typically lower than the ordinary income tax rate. However, you must hold non-statutory RSUs for at least one year in order to qualify for the capital gains tax rate.
If you choose to pay taxes on vested non-statutory RSUs at the capital gains tax rate, you will owe taxes on the difference between the vested amount and the amount you paid for the RSUs.
Table: Tax Treatment of RSUs
| Type of RSU | Tax Treatment |
|---|---|
| Statutory RSU | Taxed as ordinary income when vested |
| Non-statutory RSU | Taxed at either the ordinary income tax rate or the capital gains tax rate when vested |
RSUs and Income Tax
Restricted stock units (RSUs) are a type of equity compensation that is granted by companies to their employees. RSUs represent a right to receive a specific number of shares of the company’s stock at a future date. When RSUs vest, the employee is able to sell the shares and receive the proceeds.
RSUs are taxed differently than other forms of compensation. When RSUs vest, the employee is taxed on the fair market value of the shares at that time. This means that the employee will have to pay income tax on the difference between the fair market value of the shares and the amount they paid for the shares, if any.
- The tax rate on RSUs will depend on the employee’s ordinary income tax bracket.
- If the employee sells the shares after they vest, they will be subject to capital gains tax on the difference between the sale price and the fair market value of the shares at the time of vesting.
The following table provides a summary of the tax treatment of RSUs:
Event Tax Treatment Grant of RSUs No tax Vesting of RSUs Taxed as ordinary income at fair market value Sale of RSUs Subject to capital gains tax When are RSUs Taxable
Vesting
When RSUs vest, or become yours, you are taxed on the fair market value of the shares you receive. This is typically taxed at your ordinary income tax rate. For example, if your RSUs vest and are worth $100,000 and your ordinary income tax rate is 35%, you will owe $35,000 in income taxes.Sale
If you sell your RSUs after they vest, you will be taxed on the difference between the sale price and your cost basis. Your cost basis is the fair market value of the shares when they vested. You can choose to sell all of your RSUs at once or you can sell them over time. For example, if you sell all of your RSUs at once and they are worth $150,000 and your cost basis is $100,000, you will owe $50,000 in income taxesForfeiture
If you forfeit your RSUs, you will not be taxed. However, you will not receive the shares and you will not have to pay income taxes on the value of the shares.Long-Term Capital Gains Tax and RSUs
When you receive RSUs (restricted stock units), they are taxed as ordinary income. However, if you hold onto the RSUs for at least one year and one day, they will be taxed at the lower long-term capital gains rate.
The long-term capital gains tax rate is determined by your taxable income. The rates for 2023 are as follows:
- 0% for taxable income up to $41,675 (single) or $83,350 (married filing jointly)
- 15% for taxable income between $41,675 and $459,750 (single) or $83,350 and $539,900 (married filing jointly)
- 20% for taxable income over $459,750 (single) or $539,900 (married filing jointly)
In addition to the federal capital gains tax, you may also be subject to state capital gains taxes. The state capital gains tax rates vary from state to state.
Here is a table that summarizes the tax treatment of RSUs:
| **Holding Period** | **Tax Treatment** |
|—|—|
| Less than one year and one day | Ordinary income |
| One year and one day or more | Long-term capital gains |
Well, there you have it, folks! Now you’re all set to navigate the wild world of RSU taxation like a pro. Remember, it’s crucial to stay informed and make smart financial decisions to maximize your wealth. A huge thanks to all the readers who stuck with us through this journey. If you have any more questions or need further guidance, feel free to drop by again. We’re always here to help you ace those personal finance challenges and conquer your financial goals. See you next time!