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Mark Anderson
Mark Anderson, Tax Attorney
Category: Tax
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Experience:  Tax attorney and accountant
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Why are the taxes taken out during a RSU vesting distribution

Customer Question

Why are the taxes taken out during a RSU vesting distribution not showing in my W2s, when the RSU Stock Grant is part of my income?
Submitted: 8 months ago.
Category: Tax
Expert:  Mark Anderson replied 8 months ago.
Maybe the person doing the W-2 made a mistake. You should contact them and ask them.
Expert:  Mark Anderson replied 8 months ago.
Did you get a 1099 B? Maybe it is shown on the 1099 B.
Expert:  Mark Anderson replied 8 months ago.
It should be on your W-2:This article says it is not taxed until it vests. https://scs.fidelity.com/webxpress/help/topics/learn_rsus.shtml#implicationsTAX IMPLICATIONSWhat are the income tax implications of an RSU?Under normal federal income tax rules, an employee receiving restricted stock units is not taxed at the time of the grant. Instead, the employee is taxed at vesting, when the restrictions lapse, unless the plan allows for the employee to defer receipt of the cash or shares. In these circumstances, the employer has certain withholding obligations which may or may njot cover the entire tax liabiliity for the employee at vesting or distribution. Payment of all other taxes can be deferred until the time of distribution, when the employee actually takes receipt of the shares or cash equivalent (depending on the company's plan rules). The amount of income subject to tax is the difference between the fair market value of the grant at the time of vesting, minus the amount paid for the grant, if any.For grants that pay in actual shares, the employee's tax holding period begins at the time of distribution (which may or may not coincide with vesting depending on the plan rules), and the employee's tax basis is equal to the amount paid for the stock plus the amount included as ordinary compensation income. Upon a later sale of the shares, assuming the employee holds the shares as a capital asset, the employee would recognize capital gain income or loss; whether such capital gain would be short- or long-term depends on the time between the beginning of the holding period at vesting and the date of the subsequent sale. Consult your tax adviser regarding the income tax consequences to you.TopHow do I pay taxes on restricted stock units?Depending on plan rules, you have three options to meet your tax withholding obligation due at vesting:Net sharesIf you elect to net shares, the appropriate number of shares are withheld at vesting to cover the tax withholding obligation. You retain the number of shares vested less the number of shares withheld for tax purposes.Pay cashIf you elect to pay cash to satisfy your tax withholding obligation, you must have the appropriate amount of cash in your account on the day of vesting. The money will be debited from your account upon vesting, and will be forwarded to your company for reporting and remitting to the appropriate regulatory agencies. You retain the full number of shares that vested.If you choose to pay your withholding obligation with cash from your Fidelity Account, please note that you must have cash in that account on the vesting date to avoid having your account restricted. Electing to pay for the estimated tax withholding with cash does not fund your account.Sell to CoverIf you elect to sell to cover, you are directing Fidelity Stock Plan Services to sell a portion of your vesting shares to cover your tax withholding obligation and any applicable commissions and fees. Proceeds from your sale will be debited from your account and will be forwarded to your company for reporting and remitting to the appropriate regulatory agencies. You retain the number of vested shares less any shares sold for tax withholding, commission and fees.Assume that Mike has 250 restricted stock units vesting on January 1, 2004 but distributing on January 1, 2005. Assume the tax obligation at vesting is $500, the stock price on January 1, 2005 is $10 per share, and the tax withholding obligation at distribution is $725.Pay Cash at Vest, Net Shares at DistributionOn January 1, 2004, when the 250 units vest, Mike must have $500 cash in his Fidelity AccountSM to cover his tax withholding obligation. The $500 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies. Mike is left with the 250 units that vested.When the 250 shares are distributed on January 1, 2005, Mike's company withholds 73 shares (73 shares x $10 per share = $730) to cover the $725 tax withholding obligation. The $5 overage is applied to Mike's federal income tax. Mike is left with 177 shares (250 vested shares - 73 shares withheld to cover the tax withholding obligation = 177 shares remaining).Example 2 - Pay Cash at Vest and at DistributionOn January 1, 2004, when the 250 units vest, Mike must have $500 cash in his Fidelity AccountSM to cover his tax withholding obligation. The $500 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies. Mike is left with the 250 units that vested.On January 1, 2005, when the shares are distributed, Mike must have an additional $725 cash in his Fidelity AccountSM to cover his tax withholding obligation. The $725 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies.Example 3 - Sell to CoverWhen the 250 shares vest on January 1, Fidelity Stock Plan Services sells 74 of the shares (74 shares x $9.90 assumed stock price at time of sale = $732.60) to cover the $725 tax withholding obligation. Any overage ($2.60) remains in Mike's account. He retains 176 shares (250 vested shares - 74 shares sold to cover his tax withholding obligation = 176 shares).TopHow is tax withholding calculated?Tax withholding is calculated based on the total fair market value of your grants on the grant date (less the amount you paid for the shares, if any) multiplied by the tax withholding rate supplied by your company. You must have funds available in your Fidelity Account to satisfy the withholding obligation. The withholding will be sent to your employer for tax payment. TopHow can I determine how much will be withheld for taxes upon vesting?Click Estimate Gain to estimate your tax withholding obligation. Enter your grant data to estimate taxable income and tax withholding on vesting.TopRelated Help TopicsAccepting and Declining Grants
Expert:  Mark Anderson replied 8 months ago.
Did it vest yet? If you think I answered your question, then please accept. Otherwise, please reply. Thank you.