Restricted Stock: RSUs and RSAs

With restricted stock, taxes come into play twice: first, when the shares are delivered to you, which is typically when they vest, and then again when you sell them.

Note: This section refers to U.S. taxation. International tax filers may have different obligations.

RSUs

Taxes upon delivery
You will pay ordinary income tax on the fair market value (FMV) of the stock, which is determined by your company and is typically based on the market price of the stock upon delivery. If you are an employee, this will be treated as W-2 income and subject to a minimum withholding amount for federal and state tax, as well as social security and Medicare.

Most employers will sell shares when they vest to cover the withholding requirement. Depending on your tax situation, you may owe additional tax when you file your tax return if you are in a higher effective tax rate than the minimum. The standard federal supplemental wage withholding rate is 22% for amounts up to the applicable threshold. Your state may also have a minimum withholding rate that applies.

Taxes upon selling
When you sell your shares, you will incur a capital gain or loss, depending on whether the value of the stock increased or decreased above or below the FMV at vest. If you had a gain, you will be subject to capital gains tax.

If you sell your shares within one year of the vest date, they are subject to short-term capital gains and will be taxed at your income tax rate. If you sell your shares more than one year after the vest date, they're subject to long-term capital gains and will typically be taxed at a lower rate.

Be sure to meet with a tax professional to discuss your specific situation.

RSAs

The tax rules are similar for RSAs, with one potential tax benefit. RSAs let you take advantage of the 83(b) election, which allows you to report the stock award as ordinary income in the year it's granted rather than the year it vests. This is advantageous if you anticipate making significantly more income and falling into a higher tax bracket in the future. Note: You need to make the election within 30 days of the grant.

Keep in mind, you'll need to complete the IRS 83(b) form and mail it to the IRS within 30 days of your grant date. Additionally, you'll need to mail a copy of the completed form to your employer.

Prior to selling any shares, you'll want to carefully consider the tax consequences and your personal financial situation. For advice, consult a tax advisor or a financial consultant.

When filing your taxes, it's important to be mindful of the cost basis you report. Cost basis is the FMV your company assigned to the shares at vesting. Using the correct cost basis ensures that you file correctly and aren't taxed more than the required amount. Refer to the cost basis sheet below to help you determine the cost basis on your stock plan transactions so you can file your taxes accurately.