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Restricted Stock: Taxes


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Articles (Jump to FAQs)

Decisions At Grant With Restricted Stock (Part 1): Tax Fundamentals This is premium content

Tom Davison
Thanks to the IRS, with restricted stock you have to make decisions immediately at grant. Learn the rules that accompany this increasingly popular type of equity compensation.

Restricted Stock Taxation: What You Need To Know (Part 2) This is premium content

Bruce Brumberg and Kate Victory
Restricted stock grants carry their own requirements and tax rules, which can significantly differ from those of stock options.

Restricted Stock Units Made Simple (Part 2): Taxation This is premium content

Matt Simon
The taxation of RSUs generally resembles that of restricted stock but carries some important differences.

Decisions At Vesting With Restricted Stock (Part 1): Withholding This is premium content

Tom Davison
Vesting is a crucial moment for making decisions about your restricted stock. This article series examines your alternatives. Part 1 discusses withholding.

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FAQs (Jump to articles)

W-2 diagram! What will my W-2 show after the vesting of restricted stock? This is premium content

Restricted stock results in ordinary income to you. This occurs either at the time...

W-2 diagram! What will my W-2 show after the vesting of restricted stock units? This is premium content

Restricted stock units result in ordinary income to you. This occurs when...

When and how is a grant of restricted stock or RSUs taxed?

The timing of taxation is different than that of stock options. You pay tax at the time the restrictions on the stock lapse. This occurs when...

How and when are taxes withheld from my restricted stock? This is premium content

Restricted stock withholding is similar to withholding for most other forms of supplemental compensation. You can have different choices for paying taxes, or your company may automatically...

What are the federal tax-withholding rates on stock compensation? Is the rate different for amounts above $1 million? This is premium content

Supplemental income, such as stock compensation, is subject to one of two flat rates that are linked to rates in the income tax brackets. The rate that applies to your supplemental income depends on the...

When my restricted stock vests, how does my company choose the stock price for calculating my W-2 reporting and my share withholding? This is premium content

This depends on how your stock plan defines fair market value (FMV). Some companies may use the closing price on the vesting day, which...

How does my employer determine the amount of withholding due at the vesting of my restricted stock grant? This is premium content

Federal income tax is imposed on the value of the shares at vesting (or at grant if you made a Section 83(b) election, which is unavailable for RSUs). Tax is generally withheld at the flat rate of...

What is backup withholding? How do I prevent it or recover it? This is premium content

Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other types of payments that are reported on Form 1099. Your brokerage firm is required to make backup withholding if you are...

How does a non-US resident reclaim US backup withholding? This is premium content

If you are a nonresident alien and do not complete and file Form W-8BEN with the IRS upon receiving stock-sale proceeds, such as those stemming from equity awards, your brokerage firm will assess backup withholding on the proceeds. To reclaim backup withholding, the following should be...

Are the tax rules, withholding, and tax return reporting for restricted stock different if I am an independent contractor, a consultant, or an outside director and not an employee? This is premium content

In some ways they are similar. The tax treatment of restricted stock is the same for everyone. The reporting and withholding income is different. If you are an employee...

UPDATES! What is a "substantial risk of forfeiture" and how does it affect the taxation of restricted stock? This is premium content

This tax term applies when rights to compensation are conditioned upon future performance of services or the occurrence of...

Can I control when I will be taxed on a restricted stock grant? This is premium content

Not as you can with stock options. With stock options, tax consequences occur when...

Is the value of my restricted stock at vesting subject to state and local taxes? What if I move? This is premium content

Many states, counties, and cities impose income tax on their residents. Those that do have income tax almost always...

How are the dividends on restricted stock taxed and reported to me? This is premium content

Dividends that are earned on restricted stock are considered compensation income, which is reported on your W-2 (1099-MISC for nonemployees, such as directors). The dividends can be "qualified dividends" and thus taxed at a lower rate when...

When does my capital gains holding period begin for grants of restricted stock and restricted stock units (RSUs)? This is premium content

For restricted stock, it begins on the day after vesting, unless...

My company will let me exchange my underwater options for restricted stock. What is the tax impact? This is premium content

The standard option-for-option exchange is not taxable. When you exchange underwater options for restricted stock, the value of the shares...

Is my spouse entitled to part of my stock options and other stock grants upon our divorce?

While there are some general trends, the treatment of stock options, restricted stock, and other equity awards in divorce is far from similar in all states. In general, the outcome depends on four factors...

How is restricted stock handled in divorce? Who pays taxes when restricted stock or vested company shares are transferred in a divorce settlement? This is premium content

The basic principles that apply to options transferred in a divorce settlement also should apply to the transfer of restricted stock. This would allow...

If I die, the vesting of my restricted stock will accelerate. How would this be taxed as part of my estate? This is premium content

Typically, all or a pro rata portion of any restricted stock vests at death. The value of restricted stock that vests and is payable at your death will...

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