Restricted Stock and Performance Stock Taxes: A Guide

December 30, 2024 Hayden Adams Chris Kawashima

Restricted stock and performance stock taxes can be complex. This article helps you understand how your award is taxed and what documents you'll need to file taxes in the U.S.

Getting a restricted stock or performance stock award is a reason to celebrate. But navigating how your restricted stock or performance stock is taxed can be complex. To lessen the complexity, we'll help you understand how your award is taxed— both when it vests and when you sell shares, as well as what documents you'll need to file. This tax overview applies to Restricted Stock Units (RSUs), Restricted Stock Awards (RSAs), Performance Stock Units (PSUs), and Performance Stock Awards (PSAs) for tax filing in the United States.

Restricted stock and performance stock taxes

You'll experience two taxable events with restricted stock and performance stock—when the shares are vested and then again when you sell them.

Taxes upon vesting:

Restricted stock awards (RSAs) are taxable when they vest. Vesting means you no longer have the risk of forfeiting shares back to the company—they're yours without restriction. That's when they're taxed as ordinary income, similar to a bonus or other compensation.
Restricted Stock Units (RSUs) are taxable when they vest and are delivered. For most companies, delivery occurs at the same time as vesting. We'll assume vesting and delivery occur on the same date for this article.

RSU vesting and delivery dates typically occur on the same day, but not always. For some companies there can be a delivery lag on RSUs, which means the fair market value (FMV) on the delivery date will typically determine the amount of taxable income.

For example, Amy's RSUs vested on December 1^st when the stock price was $60, but the company didn't release shares to her until December 15^th when the stock price was $65. Her company will use $65 to assess the income taxes she owes.

Performance stock awards (PSAs) and performance stock units (PSUs) are taxed as ordinary income, just like RSAs and RSUs, but they won't vest until a certain performance target is met within the vesting period. If the performance target is not met, vesting doesn't occur and you won't receive any shares, but you won't get taxed either.

2. Taxes when selling the shares:

After the shares vest, you can either continue to hold the shares or sell them at any time. If you sell your shares, you'll only be taxed on the increase in value since the shares vested. The appreciation in share value will result in a capital gain, and a decrease in the share price will result in a capital loss. Depending on how long you held the shares, the short- or long-term capital gains tax rates will apply.

What happens when your award vests?

When your award vests, your employer will deliver shares to you. Generally, your company will withhold ordinary income taxes and FICA taxes from your award—similar to how they withhold taxes from your regular paycheck.

At tax time, you'll receive a W-2 from your employer that will report the award amount and the taxes withheld. If you're a contractor, you'll likely get a 1099-NEC form that will report income.

83(b) election for RSAs & PSAs

RSAs and PSAs (RSUs and PSUs aren't eligible) give you the ability to use a 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 may be beneficial if you anticipate making significantly more income in the future or you think the stock could be significantly higher when it's vested. Discuss the benefits and drawbacks with a qualified tax advisor to see if a 83(b) election makes sense for your situation.

Note: You have just 30 days from the RSA and PSA grant date to file an 83(b) election on IRS Form 15620, which must be mailed to the IRS. Also, keep a copy of the form for your records and send a duplicate copy to your employer.

What to do when you've sold your shares

When you sell shares, you need to report whether the shares gained or lost value. You've already paid taxes on the original value of your award when it vested—now you're subject to taxation on the difference between that value (known as the cost basis) and the sale price. This will either be a capital gain or a capital loss. If you held the shares for at least a year and a day, then you'll be subject to the lower long-term capital gains tax rates instead of the short-term capital rates, which are taxed as ordinary income.

What is cost basis and why is it important?

Calculating how much you gained or lost from the sale of stock depends on your cost basis. For the awards above, cost basis is the FMV of the shares when they vested (as well as any additional fees you paid if the stock is sold). Using the correct cost basis ensures that you file correctly and aren't taxed more than the required amount. Refer to Schwab's cost basis sheet to help you determine the cost basis on your stock plan transactions so you can file your taxes accurately.

What documents will I need to file taxes?

Here's an overview of the documents you may need when you're filing taxes and how you or your tax advisor will use them.

Documents
Why you need it
When to use it
Where you get it

Documents

Form W-2 (1099-NEC for non-employees)
Why you need it

In addition to your wages, generally, this form includes the taxable income from your vested equity award. The W-2 also details the taxes withheld from the award.
When to use it

When reporting your regular income taxes
Where you get it

Your employer will provide it during tax season.

Documents

Form 1099-B
Why you need it

Form that reports your proceeds from investment sales.
When to use it

To help calculate stock sale gains/losses when preparing your tax return.
Where you get it

From the broker that managed the stock sale (e.g., Charles Schwab).

Documents

Schedule D; Form 8949
Why you need it

Forms where you detail the gains/losses from Form1099-B and calculate capital taxes due.
When to use it

To help calculate and report on stock sales capital gains/losses when you prepare your taxes.
Where you get it

From the IRS.

Documents

Form 1040
Why you need it

Form you use to report income to the IRS.
When to use it

When reporting annual taxes – you'll report awardincome and gains/loss from sale on the form.
Where you get it

From the IRS.

Completing your IRS tax forms

Follow the IRS instructions for completing Form 8949 and Schedule D.

After completing these forms, you're ready to fill out and submit Form 1040 to the IRS. Be sure to meet with a tax professional to discuss your specific situation before filing your taxes.

Stuck with questions? Call 800-654-2593 any time Monday through Friday to get answers to your equity award questions.

Restricted Stock

Restricted Stock: RSUs and RSAs

Information about restricted stock units (RSUs) and awards (RSAs), including what they are, how they're taxed, and how to sell your shares.

Equity Compensation

When to Pay Taxes on Restricted Stock Awards

Restricted stock awards are typically taxed using their value on the vest date, but you can opt to use the value on the grant date with a Section 83(b) election instead.

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