Restricted stock units RSUs and stock grants are often used by companies to reward their employees with an investment in the company rather than with cash. As the name implies, RSUs have rules as to when they can be sold. Stock grants often carry restrictions as well. How your stock grant is delivered to you, and whether or not it is vested, are the key factors when determining tax treatment. A restricted stock unit is a paying for an actual stock grant. If your company gives you an RSU, you don't actually receive company stock. Rather, you receive units that will be exchanged for actual stock at some future date. Typically, the date you take ownership of the actual shares, known as the vesting date, is based on either time or performance. When you receive an RSU, you don't have any immediate tax liability. You only have to pay taxes when your RSU vests and you receive an actual payout of stock shares. At that point, you have to report income based on the fair market value of the stock. With a stock grant, a company provides you with stock shares rather than a unit that gives you a future right. However, this doesn't always mean you're immediately free to sell the shares. Many stock grants have a vesting period, during which you may still lose the rights to the stock. As with RSUs, stock grants typically vest after a period of time, or after certain performance measures are met. You're not liable for income tax until your stock grant vests, at which point you must report income equal to the value of the stock. You'll have to pay taxes again if you sell stock you received through an RSU or a stock restricted. After you pay the income tax on the fair value of your stock, the IRS taxes you the same as if you bought the stock on the open market. Here are restricted different ways you can be taxed: Since stock you receive through stock grants and RSUs is essentially compensation, you'll usually see it reported automatically on your W Typically, taxes are withheld to go against what you might owe when you do your taxes. As with all withholding, the taxes your employer deducts from your paycheck may not be enough to cover the full amount of tax you owe when you file your return. If your employer doesn't withhold tax on your stock grant or RSU, you may be responsible for paying estimated taxes. With estimated taxes, you'll have to send payments to the IRS about every quarter, on April 15, June 15, September 15 and January The payments are estimates of what you'll owe in total at the end of the year, based on your earnings per quarter. For example, if you get a huge stock grant in February, you'll be expected to pay estimated taxes for that grant on April 15, if there is no employer withholding. However, if your next stock grant isn't until December, you might not need to send estimated payments in June or September. If you don't want cash withheld from restricted paycheck, you may be able to pay the tax by having your employer take it out of the shares. Get every deduction you deserve. TurboTax Deluxe searches more than tax deductions and credits so you get your maximum refund, guaranteed. Guide to Short-term vs Long-term Capital Gains Taxes Brokerage Accounts, etc. Employee Stock Purchase Plans. Ways To Increase Your Tax Refund You Taxes Thought About. What You Should Know. Tax Tips If You Have Had Your Identity Stolen. Tax Tips for Part-Time Workers. Tax Implications for Same-Sex Couples. Estimate your tax refund and avoid any surprises. Adjust your W-4 for a bigger refund or paycheck. Enter your annual expenses to estimate your tax savings. Learn who you can claim as a dependent on your tax return. Turn your charitable donations into big deductions. Get a personalized list of the tax documents you'll need. Find out what you're eligible to claim on your tax return. Find your tax bracket to make taxes financial decisions. The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Site Map Affiliates and Partners Software and License Agreements Privacy Statements Security Security Certification of the TurboTax Online application has been performed by C-Level Security. Trademark Notices About Intuit Search Intuit Jobs Press By accessing and using this page you agree to the Terms and Conditions. Skip To Main Content. How to Report RSUs or Stock Grants on Your Tax Return Updated for Tax Year OVERVIEW Restricted stock units RSUs and stock taxes are often used by companies to reward their employees with restricted investment in the company rather than with cash. Restricted Stock Units A restricted stock unit is a substitute for an actual stock grant. Stock Grants With a stock grant, a company provides you with stock shares rather than a unit that gives you a future right. Selling Your Stock You'll have to pay taxes again if you sell stock you received through an RSU or a stock grant. Paying Your Taxes Since stock you receive through stock grants and RSUs is essentially compensation, you'll usually see options reported automatically on your W Get every deduction you deserve TurboTax Deluxe searches more than tax deductions and credits so options get your maximum refund, guaranteed. Looking for more information? 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Tax Return Reporting of Company Stock Sales: How To Avoid Overpaying Taxes
Tax Return Reporting of Company Stock Sales: How To Avoid Overpaying Taxes
5 thoughts on “Paying taxes on restricted stock options”
If anything, this is just as difficult, but in a different sort of way.
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