Introduction

The employer can give the employee a portion of the company's stock in restricted units. The shares will be transferred to you sometime after the vesting date. That's the only way to gain access to voting and dividends. Unvested Restricted Stock Units (RSUs) may be paid out in the form of a dividend equivalent by some companies. For the tax year 2012, the preferred rate of only 15% is available on qualified dividends, but dividends on restricted shares will be reported on your W-2 as wages unless you make a Section 83(b) choice. In contrast to stock options, the value of your RSUs will never be less than the price they were granted.

How Do RSUs on Form W-2 Work?

Form W-2 is how your company will give you and the IRS information about your annual salary. Copies including all the data you need to file your federal and state taxes will be sent to you. For tax purposes, RSUs are recognised as income in the year they are transferred to you. Income taxes, Social Security, Medicare, and other applicable payroll taxes are all subject to withholding from their compensation. Due to this, you may need to make corrections to your Form W-4 or estimated tax payments. If your company includes the income from restricted stock in the total amount you are paid for the pay period, a more significant portion of your salary may be withheld for taxes. If the RSUs are treated as a bonus or additional compensation by your employer, your salary may be under-withheld.

Restricted Stock Units

A restricted stock unit might be issued as an alternative to a direct award of stock shares. If your employer offers you a Restricted Stock Unit (RSU), you won't be getting any shares of stock. Instead of actual shares of stock, you will be issued units that can be converted into shares later. The vesting date is when you become the legal owner of the claims, and it can depend on either time or performance. No immediate tax consequences arise from receiving an RSU. You won't owe any taxes until your RSUs vest and receive stock in exchange. At that moment, you must include the stock's current market value in your income statement.

Restricted Stock Unit Taxes: Looking at Your W-2

You might wonder, "How do I find out how many RSUs I got last year and how much was withheld for sell-to-cover?" Read on for a summary of important information: Box 14 "Other" on the W-2 is where you should record your RSU income. It will often only say "RSU", followed by a total monetary number. Boxes 2, 4, and 6 will include the total amount withheld from your paycheck before any sell-to-cover withholdings were made. Box 15 at the very bottom of your W-2 will show information specific to state income tax, if applicable. (There is no state income tax in Washington.)

How Do I Report My RSU?

Box 14 of your W-2 should indicate the value of your RSUs. Box 1 of your W-2 should reflect this sum as wages. Since there is no universally accepted list of codes for use in Box 14, and since employers can list anything they choose, you can utilise the "Other Not Listed Here" drop-down menu to report RSU Gain instead. You are exempt from disclosing the stock units' existence anyplace else so long as you have not sold them. Most stock purchases are not liquidated until the following year, so you won't have any further activity to report. The Form 3921 should be kept for future reference if you were given one.

If you have cashed in on your stock options, you must do so on IRS Form 1040, Schedule D. A 1099-B detailing the proceeds from selling these shares to you should have also been sent your way. The following is the proper way to fill out Schedule D with this data: Capital Gains and Losses, Capital Gains and Losses Items, Income (Select My Forms), and Federal.

Conclusion

RSUs, or restricted stock units, are shares of stock that can only be used for specific purposes and are given to employees. Delivery of shares is typically reported after vesting concerning RSUs on Form W-2. RSUs are taxable at the stock's fair market value once transferred to the employee and are therefore included in wages. Your RSU tax withholding may need to be adjusted if your employer withholds too much or too little.