RSU Tax

[DenverCraig]

Hi There,

This is definitely a question for my accountant but I'll give this group a shot anyway.

My 2nd to last batch of RSUs vest next week. (I'm thinking very seriously about not waiting another year for the last batch, but that's a different thread). So when the RSUs vest they sell enough of the vesting shares to cover the tax, since the shares are considered "income" (there's a few ways to pay the tax, I've selected that one). The rest of the shares of stock show up in my brokerage account. If I sell them the day they show up I have to pay short term capital gains because I haven't held them for 1 year. BUT, if I sell them the same day, they will be effectively the same price as when I got them, so the appreciation will be zero or very close to zero, and as a result the short term capital gains tax will be zero or very close zero as well.

Am I understanding that correctly?

Thanks!

Craig

 

[Franklin]

Hello Craig, Ive lived off these things for years. If u check the box that says "withhold enough to cover taxes" then the remainder that hits your brokerage account will start as the "basis" or cost. Any movement up creates a gain from the basis or loss if the value goes down before you sell. So, if I am reading your thread correctly your tax is paid once you instruct the company to sell enough to cover the tax. If you sell once it hits your brokerage u likely will not owe any tax.

 

[compounder]

Yep, as stated above by Franklin, your understanding is correct. You may likely experience a small additional tax if there is a gain in the share value above the amount that you were previously taxed on, but the tax is just on that gain. Conversely, if that share price goes down, you will see a slight tax reduction refund coming back to you when you file taxes.

 

[tulak]

Yep, what the other posters said.

I’ll only add that it’s unlikely you’ll sell the shares for the purchase price since the stock price will fluctuate. But odds are this will be by a small amount in either direction, leading to a small short-term gain or loss.

 

[big-papa]

Hi There,

This is definitely a question for my accountant but I'll give this group a shot anyway.

My 2nd to last batch of RSUs vest next week. (I'm thinking very seriously about not waiting another year for the last batch, but that's a different thread). So when the RSUs vest they sell enough of the vesting shares to cover the tax, since the shares are considered "income" (there's a few ways to pay the tax, I've selected that one). The rest of the shares of stock show up in my brokerage account. If I sell them the day they show up I have to pay short term capital gains because I haven't held them for 1 year. BUT, if I sell them the same day, they will be effectively the same price as when I got them, so the appreciation will be zero or very close to zero, and as a result the short term capital gains tax will be zero or very close zero as well.

Am I understanding that correctly?

Thanks!

Craig

Yes, you're understanding is mostly correct. From the time they hit your brokerage account and the same you sell them, the price is likely to have moved around a little bit. You might get lucky and the difference rounds down to zero, but that seems to seldom happen with me, so it ends up being a line item in my tax filing. Thank goodness for the ability to download this into my tax software.

Also, you might want to check how much they're selling to cover taxes.

 

[Animorph]

All of which means you can also just sell all the shares (which should be one of the sell options) and invest in something other than company stock. There is no special benefit to retaining the shares.

 

[ut2sua]

Hi There,

This is definitely a question for my accountant but I'll give this group a shot anyway.

My 2nd to last batch of RSUs vest next week. (I'm thinking very seriously about not waiting another year for the last batch, but that's a different thread). So when the RSUs vest they sell enough of the vesting shares to cover the tax, since the shares are considered "income" (there's a few ways to pay the tax, I've selected that one). The rest of the shares of stock show up in my brokerage account. If I sell them the day they show up I have to pay short term capital gains because I haven't held them for 1 year. BUT, if I sell them the same day, they will be effectively the same price as when I got them, so the appreciation will be zero or very close to zero, and as a result the short term capital gains tax will be zero or very close zero as well.

Am I understanding that correctly?

Thanks!

Craig

They attempt to sell enough to cover your tax is more correct. In the end, it depends on your tax bracket etc.
From a high level, RSU's, when vested, is your income for that year. How/When you sell your RSU shares is up to you (except you are forced to sell to cover some initial taxes, unless you have $ in the account to pay for some estimated taxes when vested). The IRS will tax you for the added income from the RSU's in that year. Other gain/lost from selling your RSU shares are considered capital gain/lost long/short term all depend on your timing just like any other stock.

 

[Neill]

>they sell enough of the vesting shares to cover the tax

Are you sure they don't just take supplemental income tax which is 22% unless you earn more than a million a year in which case it is 37%.
Somebody mentioned checking a box to avoid this but I didn't think you could. I always had 25% (long ago now) taken at vest time.

 

[ut2sua]

>they sell enough of the vesting shares to cover the tax

Are you sure they don't just take supplemental income tax which is 22% unless you earn more than a million a year in which case it is 37%.
Somebody mentioned checking a box to avoid this but I didn't think you could. I always had 25% (long ago now) taken at vest time.

For my case, they sold enough to cover around 20%. Since my marginal tax rate is higher, I always have to pay estimated tax to cover the rest. So what you mentioned is correct for my case.