Restricted Stock Units are an award of company stock, subject to conditions (such as continued service to the company or attainment of performance goals) that must be met before you have the right to sell or transfer the stock. Taxes are due at vesting. When the shares vest, you will realize compensation based on the fair market value of the shares on that date. For example, if you have 100 shares that vest when the fair market value is $20 per share, you will recognize ordinary income of $2,000. Your company may offer various options for paying the income tax due on the $2,000, including choices such as:
Withhold-to-Cover: Your employer will automatically withhold some of the vested shares to cover the taxes due. Using the example above and applying a default tax withholding rate of approximately 40%, the taxes due would be $800 ($2,000 X 40% = $800/$20 per share), equal to 40 shares. Your employer would withhold the 40 shares and release the remaining 60 shares to you.
Cash: You may also have the option to pay the taxes directly to your employer via payroll or check. Your account will be credited with the full amount of vested shares.
Sell-to-Cover: A sufficient number of vested shares are sold to cover the taxes, commissions and fees due. Using the example above, your company would sell approximately 40 shares and release the remaining shares to your account. Please refer to your plan documents for details on your particular company’s tax payment methods.
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