Understanding RSU Vesting and Taxation Made Simple

Restricted Stock Units (RSUs) are a popular form of equity compensation, but the taxation surrounding them can be tricky. Here’s a simplified breakdown of what you need to know.

What Are RSUs?

RSUs are company-granted shares that you earn over time (vesting). Unlike stock options, you don’t buy RSUs—they’re awarded as part of your compensation package.

When Are RSUs Taxed?

Taxation kicks in when your RSUs vest. On the vesting date, the value of the vested shares is treated as ordinary income. This amount is typically added to your paycheck and taxed like your salary.

What Happens at Sale?

When you sell your RSUs, you could owe additional taxes. If the value of the shares has increased since vesting, the gain is subject to capital gains tax. Holding the shares for more than a year after vesting qualifies for lower long-term capital gains rates.

Tips to Optimize Taxation:

• Plan Ahead: Work with a tax professional to forecast your tax impact.
• Understand Withholding: Employers often withhold a portion of shares to cover taxes, but it may not be enough.
• Consider Timing: Align sales with your financial goals and tax strategy.

RSUs can boost your wealth, but navigating their tax implications is crucial. Learn more at NexGenTaxes.