IN THIS ISSUE

Restricted stock/RSU taxation

How restricted stock and RSUs differ

Articles on restricted stock/RSUs

New content section on performance shares

Highlights of new content: restricted stock taxation when you reach retirement eligibility; restricted stock in M&A; netting restricted stock income against capital losses; stock option exercise strategies; ESPP contributions and your 401(k)

myStockOptions.com Pro for financial advisors wins another award


SPONSORS OF THIS ISSUE

Restricted Securities Trading Network (RSTN): The world's largest marketplace for restricted and illiquid securities (see www.RestrictedSecurities.net and information below)

Rule 144 opinions: Rule144Solution.com provides cost-effective securities opinions, usually within 2 business days, based on a thorough understanding of recent changes to Rule 144 (see http://www.rule144solution.com and information below)

Find out why E*TRADE Corporate Services is the stock plan provider of choice for a quarter of the S&P 500 (see http://business.etrade.com and information below)


EDITOR'S WELCOME

Restricted stock, along with its almost identical twin restricted stock units (RSUs), now rivals stock options in popularity. Back in 2002, when myStockOptions.com noticed the early signs of a trend toward restricted stock/RSUs, we started developing a substantial amount of content and tools/calculators on these types of grants.

The depth of our restricted stock/RSU content now rivals that of our resources on stock options and employee stock purchase plans. For those of you who want to test your knowledge or are new to the topic, we even have a special interactive quiz and a podcast on restricted stock. Below you will find the full text of two FAQs and links to our key articles on the topic.

We thank our members at all subscription levels who continue to praise and preach the benefits of membership and licensing to their fellow employees, to financial advisors, and to professionals in compensation, HR, and finance. Along with the many users of our site who have become Premium or Pro members, companies, stock plan providers, and financial advisors are also contacting us about:

  • Premium Memberships in bulk at discounted subscription rates

  • Licenses for our easy-to-integrate Knowledge Center of content and tools for HR and compensation portals and stock plan service providers' websites; our educational resources are particularly useful when employees and executives are new to restricted stock grants, or when vesting dates approach

  • Pro level membership for financial and wealth advisors who need to track and model stock grants for multiple clients (includes innovative tools for client communications)

For more information on these corporate services, please email info@mystockoptions.com. Have a great summer!

~ Bruce Brumberg, Editor-in-Chief


SPECIAL FAQs ON RESTRICTED STOCK & RSUs

Below are two frequently asked questions (FAQs) about restricted stock and restricted stock units (RSUs). They are taken from the 700+ FAQs on myStockOptions.com. All of these FAQs are available for your company to license or by Premium or Pro Membership. Please do not copy or excerpt this information without our permission.

Question 1:

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

Answer:

The timing of when you trigger tax is different from that of stock options. You pay tax at the time the restrictions on the stock lapse. This occurs when you have satisfied the vesting requirements and are certain to receive the stock (no continued risk of forfeiture).

Your taxable income is the value of the stock at that time (i.e., the market price), minus any amount paid for the stock. You then have compensation income subject to federal and employment tax (Social Security and Medicare), and any state and local tax. It is subject to mandatory supplemental wage withholding. See a related FAQ on myStockOptions.com for details on tax withholding and the ways of paying it.

If you have restricted stock units, the taxation is similar, except you cannot make an 83(b) election (discussed below) to be taxed at grant. With RSUs you are taxed when the shares are delivered to you, which is almost always at vesting. (For more details on RSUs, see the relevant content section at myStockOptions.com.)

Example: You receive 4,000 shares of restricted stock that vest at a rate of 25% a year, and the market price at grant is $18. You do not pay for the grant. The stock price at year one is $20 (1,000 x $20 = $20,000 of ordinary income), at year two $25 ($25,000), at year three $30 ($30,000), and at year four $33 ($33,000); the total is $108,000, each increment of which is taxable on its vesting date. You sell all the stock two years after the last shares vest, when the price is at $50 ($200,000 for the 4,000 shares). Your capital gain is $92,000 ($200,000 minus $108,000). For an annotated illustration of how to report this sale on Schedule D of your tax return, see the section Reporting Company Stock Sales in the Tax Center on myStockOptions.com.

Alternatively, you can make a "Section 83(b) election" with the IRS within 30 days of the grant (this choice is unavailable for restricted stock units). This means you pay taxes on the value of the stock at grant, starting your capital-gains holding period for later resales. If the shares never vest because you leave the company, you cannot recover the taxes you paid at grant. For details of the risks associated with the 83(b) election, see the relevant content section on myStockOptions.com.

You can also receive dividends with restricted stock. Dividends are taxable (the tax treatment is discussed in another FAQ on myStockOptions.com).

Unlocking the Value of Restricted Securities

 


The Restricted Securities Trading Network (RSTN) is the world's largest online trading platform for investors interested in buying and selling restricted securities, an asset class valued at $1.2 trillion. The RSTN is comprised of over 1,500 members representing well in excess of $250 billion in investable assets. Since inception in September 2005, we have completed over 1,000 transactions. The RSTN facilitates transactions in the following types of securities:

  • Restricted Stock (Unregistered Securities;
    Securities held by Affiliates or Control Persons)
  • Warrants / Stock Options
  • Convertible Debt / Preferred Stock
  • 144A Equity
  • Private Company Securities
  • Other illiquid assets, such as Auction-Rate Securities and
    Bankruptcy Claims

We also provide:

  • Execution of Rule 144 and prospectus sales
  • Administration and settlement of all transactions

To learn more about the RSTN, go to www.RestrictedSecurities.net.

Question 2:

What is the difference between restricted stock and restricted stock units (RSUs)?

Answer:

The traits of restricted stock include the following:

  • At grant, restrictions on sale and the risk of forfeiture exist until you meet vesting goals of employment length or performance targets.

  • Normally, the grant vests in increments over several years.

  • During the restricted period (i.e., the vesting period), dividends are paid, and grant-holders have voting rights, like shareholders.

Restricted stock units (RSUs) have many similarities. But important differences exist:

  • The stock itself is not issued or outstanding until the actual release of the shares. Technically, RSUs are an unfunded promise to issue a specific number of shares (or a cash payment) at a future time once vesting conditions have been satisfied. Stock-settled RSUs are much more common than cash-settled RSUs (which are subject to unpopular variable accounting), and they are used widely enough to rival the use of standard restricted stock.

  • Under most RSU plans, such as the grants at Amazon, Microsoft, and Intel the delivery of shares occurs at vesting. These plans are similar in concept to standard time-vested restricted stock. Other RSU plans have a tax-deferral feature that lets you select a date for share delivery, or the company specifies one (e.g., retirement).

  • Holders of RSUs have no voting rights and, depending on the plan details, may or may not receive dividend equivalents.

For the reasons your company may prefer one type of grant over another, see a related FAQ on myStockOptions.com. See another FAQ about the tax differences.

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SPECIAL ARTICLES ON RESTRICTED STOCK

Why You'll Learn To Like Restricted Stock Grants, by Richard Friedman
While grants of restricted stock or RSUs don't carry the same upside as stock options, they have benefits you will surely appreciate once you understand their special features. Read this article free!

Restricted Stock Fundamentals: What You Need To Know, by Bruce Brumberg and Kate Victory This is premium content
Restricted stock grants carry their own requirements and tax rules, which can significantly differ from those of stock options. Before you can profit from them, you need to understand how this form of equity compensation works. Read the article and its companion on restricted stock taxation.

Restricted Stock: Tax, Financial, Estate, And Retirement Planning, by Richard Friedman This is premium content
Understand financial planning for restricted stock and RSUs. Part 1 discusses the growing popularity of these grants, their special features, and the related tax planning. Part 2 covers financial, estate, and retirement planning.

Decisions With Restricted Stock, by Tom Davison This is premium content
In this five-article series, learn about the key decisions you must make at grant and vesting.

Restricted Stock Versus Stock Options: Making A Rational Choice, by Alan Ungar This is premium content
In a growing trend, your company may let you choose between stock options and restricted stock. Which is better for you? Part 1 explains the nature of the choice. Part 2 analyzes the decision-making you must make according to your financial situation and goals.

Content with the This is premium content symbol requires Premium Membership.

Rule 144 opinions – Changes to Rule 144 in effect February 15, 2008 have caused confusion among stockholders, issuers, transfer agents and attorneys.

Rule144Solution.com specializes in Rule 144. We have a thorough understanding of the recent changes to the Rule and offer cost-effective services to fit your Rule 144 opinion needs.

  • We deliver opinions by e-mail usually within 2 business days after receipt of complete stockholder information by fax.
  • Our fees are reasonable, ranging from $150 to $250 for regular Rule 144 opinions.
  • We provide user-friendly form letters in interactive Adobe Acrobat.
  • Opinions have been accepted by over 100 issuers and dozens of transfer agents, beginning in 2006, for almost 1,000 stockholders.
  • We are available for free telephone consultation at 813-874-8854.

Rule 144, as in effect, makes it much easier for stockholders not affiliated with the issuer to have legends removed from their stock certificates, now with a 6 month (reporting companies) or a 1 year (non-reporting companies) period of ownership. Transfer agents are generally requiring legal opinions for all legend removals, in part out of concern for the shell-company prohibition against using Rule 144. 

Rule144Solution.com is the proven, independent source for opinions to assist stockholders, transfer agents and broker-dealers in legend removal. We also provide opinions for 144 sales by issuer directors, officers and other affiliates. For more details about our services, visit our website.

NEW SECTION ON PERFORMANCE SHARES

Many companies are now making grants of restricted stock and RSUs with performance-vesting features, or are making grants that pay out only when performance goals are met. For this reason, myStockOptions.com has added a new content section on performances shares.

To maximize the value of a performance share grant, you need to understand its structure more than you do with standard-time vested restricted stock or stock options, as performance share grants come with greater variety. We clearly present what you need to know in our engaging articles and FAQs on a range of topics, including:

  • grant structure
  • common grant features and survey data about companies' practices
  • taxation and the tax reporting on your W-2 and Schedule D
  • expiration and forfeiture

Companies can also license and customize this content to fit their performance share plans with our corporate services. Contact info@mystockoptions.com for more information.

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SELECTED HIGHLIGHTS OF NEW CONTENT ON MYSTOCKOPTIONS.COM

Here are more selections from myStockOptions.com's newest award-winning educational content. All of these are available to our Premium and Pro Members and our licensees:

Reaching your company's retirement-eligibility age can trigger tax on your restricted stock even if you do not actually retire. See the relevant FAQ in Life Events: Retirement.

Taxation of restricted stock/RSUs in an acquisition can vary according to the structure of the deal. See the relevant FAQ in M&A: Taxes.

Income from restricted stock cannot be netted against capital losses. See Restricted Stock: Taxes Advanced.

To develop a stock option exercise strategy for reaching your financial goals, you need to understand key concepts. See the two-part article series by Alan Ungar in Financial Planning: Advanced Strategies.

ESPP participation will not affect your ability to participate in your 401(k) plan. See the FAQ in ESPPs: Rules.

 


E*TRADE Corporate Services
offers full end-to-end support for all equity vehicles, including options, ESPPs, restricted stock, stock appreciation rights, and—coming later this year—performance awards. Whether you choose full or partial outsourcing, or in-house plan management, you will receive dedicated support, expert service, and product leadership. With 25 years of experience, E*TRADE Corporate Services knows how to meet the needs of your employees, your executives, and your auditors. Visit http://business.etrade.com or email csg@etrade.com to learn more.

AWARDS FOR MYSTOCKOPTIONS.COM PRO

myStockOptions.com Pro (MSO Pro), a special membership level for financial and wealth advisors, has already won two prestigious awards this year. Early in 2008, the magazine CPA Wealth Provider chose MSO Pro as a winner in its fifth annual financial-planning awards to honor CPA/financial-planning firms, broker/dealers, and vendors of financial-planning software. As the magazine explained, "the winners are those firms or companies that have taken the lead through innovation, efficiency, initiative, or growth in the financial-planning area."

Earlier this month, the Specialized Information Publishers' Foundation (SIPF) honored MSO Pro with one of its Editorial Excellence Awards in the category of Best Interactive Content among niche publishers. Awards in this category are given for great achievements in "the techniques employed to involve the user, value of original content, ease of use to the audience, and relevance to the niche community."

Among the many features of MSO Pro, an advisor can:

  • track and model stock grants for several clients at once
  • impress clients with PDF versions of articles, FAQs, and tool results branded with the name and logo of the advisor's firm
  • set up email grant alerts to remind the advisor and clients about important dates and target grant values
  • give clients special access to a confidential and highly secure online portal (myCompanyStock.com) to share grant records and tool results

To learn more about MSO Pro, see our informational pages about it, call us at 617-734-1979, or email info@mystockoptions.com.

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CORPORATE SERVICES

myStockOptions.com Helps You And Your Employees With Taxation, Financial Planning, And Life Events

Are you adding or switching to restricted stock, restricted stock units (RSUs), performance shares, or stock appreciation rights (SARs)?

Our innovative Knowledge Center is a popular corporate service from myStockOptions.com that can strengthen your stock plan education, particularly when you are changing your stock plan and making new grants. Companies and stock plan service providers are licensing this package of our award-winning educational content, interactive quizzes, and dynamic animated calculators/modeling tools.

The Knowledge Center and calculators can be quickly and seamlessly integrated into your HR, benefits, or compensation portal. This includes all of our Premium content and features, and is automatically updated. No user sign-in is required.

  • Strengthen your stock plan communications and education.

  • Help employees understand and appreciate these new types of stock grants and make smarter decisions.

  • Reduce staff time and expense by letting the content of myStockOptions.com answer employees' questions about taxes, financial planning, life events, and more.

Select all or a portion of myStockOptions.com's expert content, quizzes, and calculators. For more information on our corporate services, call 617-734-1979 or email sales@mystockoptions.com.

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