Advantages of Restricted Stock Units RSUs give an employee an incentive to stay with a company long term and help it perform well so that their shares increase in value. RSUs also allow a company to defer issuing shares until the vesting schedule is complete, which helps delay the dilution of its shares.

How do I report sale of restricted stock units?

When you receive an RSU, you don’t have any immediate tax liability. You only have to pay taxes when your RSU vests and you receive an actual payout of stock shares. At that point, you have to report income based on the fair market value of the stock.

How are restricted stock and stock options vesting?

As a preliminary note, both restricted stock and stock options may be subject to vesting. Vesting can either occur via the lapse of a company granted repurchase right or via an additional grant.

When does the value of a restricted stock increase?

The stock is assigned a fair market value at the time of vesting. When the price of stock rises above the grant price, the value of the option increases correspondingly. However, if the stock price drops below the grant price, the value of the option decreases. In most cases the vesting schedule is completed at five years.

What’s the difference between restricted stock and RSUs?

RSUs resemble restricted stock options conceptually, but differ in some key respects. RSUs represent an unsecured promise by the employer to grant a set number of shares of stock to the employee upon the completion of the vesting schedule.

Why do companies offer restricted stock to employees?

In the last decade, firms have increasingly turned to offering employees options and restricted stock (often with restrictions on trading) as part of compensation packages. Some of this trend can be attributed to the entry of young, cash poor technology firms into the market, many of which have to use equity because they have no choice.