Restricted Stock Units (RSUs) Quiz

Think you know RSUs? Test your knowledge!

Please answer the following 10 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading. For in-depth courses of study that offer CE credits, see the myStockOptions Learning Center.

1. Which is one difference between restricted stock and RSUs?

Restricted stock is a type of stock option; an RSU grant gives you actual shares that you can’t transfer until vesting Restricted stock is a grant of actual unvested shares; an RSU grant is a promise to deliver shares at vesting With RSUs, vesting must be time-based and cannot be based on performance goals With RSUs, you can choose to pay tax at grant instead of at vesting

2. Why would a company grant RSUs instead of restricted stock?

No shares are issued until the time for delivery, reducing administrative burdens Depending on the plan, the company can avoid paying cash dividends during the vesting period For overseas employees it prevents hassles in countries where restricted stock is taxed at grant All of the above

3. When are restricted stock units subject to ordinary income tax?

At grant At exercise At the time of share delivery (usually vesting) At vesting, even if share delivery is deferred

4. With RSUs, can you make a Section 83(b) election with the IRS to be taxed on the shares’ value at grant, as you can with restricted stock?

Only if your company’s stock plan permits it Yes, within 30 days of the grant date Yes, within one year of the grant date Never, as the tax code does not allow 83(b) elections for RSUs

5. When a company automatically withholds shares for taxes at RSU vesting, what amount of taxable income is reported on the employee’s Form W-2?

The value of the shares at vesting after the withholding of shares The value of all the vested shares before the withholding of shares Both amounts, in separate boxes The income is not reported on Form W-2

6. Which tax treatment can apply when an employee becomes eligible for the acceleration of RSUs at retirement but is still working for the company?

Taxation cannot occur until actual retirement The grant will be subject to Social Security and Medicare early at retirement eligibility, even though no shares can be sold yet to pay the tax The grant will be subject to income and FICA taxes early at retirement eligibility, with a special sale of shares to pay the tax The grant will be taxed early at retirement eligibility, but no tax is due until actual vesting if an election is made within 30 days of becoming eligible for retirement

7. Can RSU-holders receive dividend equivalents during the vesting period?

Yes, if the company chooses to pay them Yes, the company is required to pay them Never Only if they are paid in additional shares

8. Under IRC Section 409A, what rules apply to an election to defer share delivery with time-vested RSUs?

It must be made within 60 days of the grant and cannot vest for at least 24 months after the election It must be made within 10 days of the grant and cannot vest for at least 12 months after the election It must be made within 30 days of the grant and cannot vest for at least 12 months after the election It must be made within 30 days of the grant and cannot vest for at least 36 months after the election

9. After the company withholds shares automatically for taxes at RSU vesting, do you report a sale of the withheld shares on your tax return?

You report the sale only if you also sell the remaining shares at vesting You report the sale if you receive IRS Form 1099-B from your company or broker showing the proceeds with a sell-to-cover for the taxes You report the sale if you receive IRS Form 1099-B from your company or broker that does not show the proceeds with a sell-to-cover for the taxes You do not report shares sold for tax withholding

10. When does the capital gains holding period begin for shares acquired from RSUs?

On the date of vesting, even if share delivery is delayed On the date of share delivery On the day after vesting, even if share delivery is delayed On the day after share delivery

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