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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121341  
Subject: Re: Paying taxes on vested RSUs Date: 10/29/2012 5:44 PM
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DH has RSUs that will vest in February. Unless he specifies he wants to pay in cash, shares will be withheld to cover the taxes owed. Is there any reason not to withhold shares?

No, but that's not exactly what happens. This isn't my standard nitpicking over terminology. It's important that you understand the process (and hold on to the paperwork) so you'll know what to do when you prepare your return for that year. Mishandling this is the most common error I've seen (and source of IRS ridicu-bills).

Share aren't withheld for taxes, they're sold, with the proceeds returned to the company, which then includes the tax withholding with its other employment tax payments. The agent handling the transactions will send hubby a statement of what happened along with the check for his share of the proceeds. Hang on to that statement.

The value of the stock on the day it vests (minus anything hubby paid for it) is compensation subject to normal income, SS and Medicare taxes. The gross amount will be included in Box 1 of his W-2, and the withholding in the appropriate boxes on the W-2. There should also be an information entry in the W-2 Box for extraneous information. After the dust settles he should check his paystub, which should reflect thses numbers in the YTD amounts.

He will also receive a 1099-B for the full value of the shares sold to cover the taxes. That must be reported on Schedule D. The basis is anything he paid out of pocket in cash plus the amount deemed to be compensation. It usually results in a small loss equal to the fees.

Phil
Rule Your Retirement Home Fool
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