Taxation of RSUs vested but not delivered

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newacct
Posts: 25
Joined: Thu Feb 23, 2012 2:03 am

Taxation of RSUs vested but not delivered

Post by newacct » Thu Feb 06, 2020 6:30 pm

I had several chunks of RSUs vest at various times last year, but the company has, to this date, not given me the stocks yet. There is no agreement between the company and employees to defer delivery of the stocks; the company hasn't delivered the stocks just because they are slow and unfamiliar with setting up the whole process. I am in the United States. My question is about what year the RSUs would be taxed under. Would they:

1. Be taxed under last year because that's when the RSUs vested,

2. Be taxed under this year because that's when the stock is (or hopefully will be) delivered, or

3. Be taxed under last year, and be subject to a 20% penalty, for violation of section 409A rules regarding deferred compensation?

Jack FFR1846
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Re: Taxation of RSUs vested but not delivered

Post by Jack FFR1846 » Fri Feb 07, 2020 1:00 pm

The day they vest, their value is taxable.

The end.
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Topic Author
newacct
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Re: Taxation of RSUs vested but not delivered

Post by newacct » Fri Feb 07, 2020 2:17 pm

Jack FFR1846 wrote:
Fri Feb 07, 2020 1:00 pm
The day they vest, their value is taxable.

The end.
But every place I've read, it says that RSUs are taxed when you receive the shares, which is "almost always" at vesting, but isn't in my case. And in fact, I've read that some plans allow you to defer receipt of the shares, which defers the income taxes, which contradicts your statement.

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1789
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Re: Taxation of RSUs vested but not delivered

Post by 1789 » Fri Feb 07, 2020 2:23 pm

newacct wrote:
Fri Feb 07, 2020 2:17 pm
Jack FFR1846 wrote:
Fri Feb 07, 2020 1:00 pm
The day they vest, their value is taxable.

The end.
But every place I've read, it says that RSUs are taxed when you receive the shares, which is "almost always" at vesting, but isn't in my case. And in fact, I've read that some plans allow you to defer receipt of the shares, which defers the income taxes, which contradicts your statement.
It is hard to believe that your situation will be different. Your case is not finalized yet as company didn't give your shares yet. Let me give you an example of a scenario.

Assume i am granted 160 shares worth of RSUs last year and they start vesting this year with ,25% of total shares each year. I see that i will be granted 40 shares this year in E trade. (25% of 160 shares) and when the day comes a surprise! I only see that i have 24 shares is mine because company cut 16 shares for taxes (40% of shares). This repeats in the the following years as well.
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MikeG62
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Re: Taxation of RSUs vested but not delivered

Post by MikeG62 » Fri Feb 07, 2020 2:45 pm

OP, what has your employer reflected in your W2 (which you should have by now)?

As someone else said, they should be taxable upon vesting. The delay of receipt seems to me to be an administrative processing error on the part of your employer and not something which should impact the year they are taxable.

Push your employer to get their act together.
Real Knowledge Comes Only From Experience

gangstacro
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Re: Taxation of RSUs vested but not delivered

Post by gangstacro » Fri Feb 07, 2020 3:15 pm

Long time lurker, first time poster. I am also a CPA who also happens to be a long time recipient of RSUs and am very familiar with their taxation.

RSUs are taxed upon DELIVERY, which CAN BE the same time as vesting, but NOT always. The term that is used in the IRS code is "constructive receipt", that is, income is taxed upon the constructive receipt of the income by the recipient. For RSUs, the Company can elect what day is considered the date of constructive receipt. It could be the day the shares vest, with the number of days it takes to administratively deliver the shares deemed to be immaterial, or the Company could determine the date of constructive receipt to be the day the shares are actually delivered to the recipient (perhaps via deposit into to their brokerage account for a publicly traded company) and the recipient has the ability to monetize those shares. All of this is normally laid out in the Company's RSU plan documents and their election is filed with the IRS.

Many companies are public and choose to delay delivery of the RSUs until they open their trading window, as a method to curtail insider trading. For example, my company grants RSUs as a part of annual compensation and they have a vesting date of 12/31 each year. However, the company does not actually deliver the RSU's until we release our earnings, normally in early February. In this instance, my Company has elected the date of delivery, which is 30+ days after vesting, to be the date constructive receipt and thus the date the RSUs become taxable. On this date, my Company deposits the shares into my brokerage account and issues me a pay slip detailing the taxable income (number of shares x share price on the day of delivery), and applicable withholding amounts. At our Company we have the ability to pay the taxes in cash and receive the gross shares or we can "net share settle" with the company delivering an amount of shares net of the taxes.

As always, a simple statement of "always on vesting" is not correct.

Topic Author
newacct
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Joined: Thu Feb 23, 2012 2:03 am

Re: Taxation of RSUs vested but not delivered

Post by newacct » Wed Feb 12, 2020 12:45 am

Assuming that the stocks are considered constructively received in the later year, would FICA taxes still have to be withheld for RSUs in the year of vesting due to the rules in Treasury Regulation 31.3121(v)(2), due to it being considered a nonqualified deferred compensation plan? Or would it not be considered a nonqualified deferred compensation plan since the RSU plan does not explicitly provide for (and the employees did not elect) deferral? Would the length of the delay in payment matter?

Oregano
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Re: Taxation of RSUs vested but not delivered

Post by Oregano » Fri Feb 14, 2020 5:48 pm

Jack FFR1846 wrote:
Fri Feb 07, 2020 1:00 pm
The day they vest, their value is taxable.

The end.
That is not correct.

The end.

quantAndHold
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Re: Taxation of RSUs vested but not delivered

Post by quantAndHold » Fri Feb 14, 2020 5:49 pm

Oregano wrote:
Fri Feb 14, 2020 5:48 pm
Jack FFR1846 wrote:
Fri Feb 07, 2020 1:00 pm
The day they vest, their value is taxable.

The end.
That is not correct.

The end.
Explain why not. With citations.
Yes, I’m really that pedantic.

Oregano
Posts: 28
Joined: Fri Nov 22, 2019 9:30 pm

Re: Taxation of RSUs vested but not delivered

Post by Oregano » Fri Feb 14, 2020 6:06 pm

quantAndHold wrote:
Fri Feb 14, 2020 5:49 pm
Oregano wrote:
Fri Feb 14, 2020 5:48 pm
Jack FFR1846 wrote:
Fri Feb 07, 2020 1:00 pm
The day they vest, their value is taxable.

The end.
That is not correct.

The end.
Explain why not. With citations.
Google it and you'll find articles such as https://www.schwab.com/public/eac/resou ... facts.html stating things such as "With RSUs, you are taxed when the shares are delivered, which is almost always at vesting."

I don't have IRS info, but have knowledge of a number of corporate plans that, for example, vest on a certain date and then are delivered in 20% installments over the next 5 years. Employees are taxed on delivery, not vesting. I haven't seen any examples that contradict this.

Oregano
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Joined: Fri Nov 22, 2019 9:30 pm

Re: Taxation of RSUs vested but not delivered

Post by Oregano » Fri Feb 14, 2020 6:08 pm

quantAndHold wrote:
Fri Feb 14, 2020 5:49 pm
Oregano wrote:
Fri Feb 14, 2020 5:48 pm
Jack FFR1846 wrote:
Fri Feb 07, 2020 1:00 pm
The day they vest, their value is taxable.

The end.
That is not correct.

The end.
Explain why not. With citations.
Why didn't you ask Jack FFR1846 to explain, with citations?

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