Income From Restricted Stock

This is called the vesting period during which employees don t own the stock outright.

Income from restricted stock. Restricted stock will go through different periods of vesting and will trigger different tax treatment along the way including both ordinary income tax and capital gains taxes. Even though you do not purchase stock acquired from restricted stock rsus your tax basis for reporting the stock sale on form 8949 is the amount of compensation income recognized at vesting that. Restricted stock grants have become more popular since the mid 2000s when companies were required to expense stock option grants. The income from restricted stock is included on the employee s w2 as taxable wages.

An employee selects an income tax treatment at the time restricted stock is granted. Income appears in the following places. Both rsas and rsus are employer plans designed to reward and retain employees by offering additional compensation in the. Your taxable income is the market value of the shares at vesting.

Restricted stock units rsus are a common form of compensation in high tech companies and some not so high tech. If the restricted stock is subject to a restriction that will never lapse the employee is taxed when the option is exercised. Rsus are an eligible source of. The income that eventually must be recognized for federal taxes is the difference between the fair market value of the restricted stock on the date the restriction lapsed and the cost of the stock to the employee.

Employees defer selling the shares during the restriction period. Lenders set forth certain stipulations for potential borrowers interested in securing a home loan with. 1 57 how restricted stocks and rsus are taxed. Two common forms of equity compensation are restricted stock awards rsas sometimes referred to as restricted stock and restricted stock units rsus.

Restricted stock rsus performance shares. If an 83 b election is made the value of the restricted stock will be reflected as income on the w2. With rsus you are taxed when you receive the shares. Subject to certain guidelines income from rsus can now be considered qualifying income towards a mortgage.

But using that income to qualify for a mortgage has been a challenge. The vesting of restricted stock the share delivery from restricted stock units rsus and the vesting of performance shares all prompt w 2 reporting of the income received. Deffered stock and restricted stock are interchangeable terms. If you have received restricted stock units rsus congratulations this is a potentially valuable equity award that typically carries less risk than a stock option due to the lack of leverage.