RSUs are taxed as income to you when they vest. If you sell your shares immediately, there is no capital gain tax, and the only tax you owe is on the income. However, if the shares are held beyond the vesting date, any gain (or loss) is taxed as a capital gain (or loss).

How are dividends on restricted stock taxed and reported?

Dividends paid on restricted stock are considered a compensation income event and subject to tax (withholding by employer) at the time they are paid out to the employee. The income and related withholdings are reported on the employee’s W-2.

What happens when restricted stock awards vest?

The restricted stock units are assigned a fair market value when they vest. Upon vesting, they are considered income, and a portion of the shares is withheld to pay income taxes. The employee receives the remaining shares and can sell them at their discretion.

When do I have to pay tax on restricted stock units?

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 (some plans offer deferral of share delivery). For details, see the section on RSUs.

When do restricted stock awards become taxable income?

When no Section 83 (b) election is made, the stock’s value less any amount paid for it is recognized as taxable compensation for income and employment tax purposes when the stock becomes fully vested. Any stock appreciation between the date of the award and the date of the vesting is treated as high-taxed ordinary income from compensation.

When to notify the IRS about restricted stock?

If you decide to make the election, you must notify the IRS either before the restricted stock is transferred to you or within 30 days after that date. Your tax pro can help you with the election details. The tax rules for restricted stock are fairly straightforward.

How is the value of restricted stock reported?

Therefore, the value of the stock is reported as ordinary income in the year the stock becomes vested. There are many different kinds of restricted stock, and the tax and forfeiture rules associated with them can be very complex. This article only covers the highlights and should not be construed as tax advice.