[quote=joec]Does the company pay the tax or the employee? I didn’t spend much time researching RSU’s since I don’t have any, but here’s an article on it with this blurb in it:
“Facebook faces a massive ($3 billion) tax bill related to its employee stock compensation and can no longer do what it planned to do, which was sell shares to raise this cash.”
For RSU, you (the employee) pay the tax. However, the company often does it on your behalf by withholding the tax you elected…It can do this by selling shares that was going to delivered to you to pay for taxes.
Example: Suppose you vest Sept 1, 2012 1000 shares of FB.
The company might have a “net issuance” in that based on what you elected as your tax withholdings, deliver you only 700 shares of FB on Sept 1. The remaining 300 shares, it will “hold” and use to pay for taxes. (From your perspective, it’s as if the company sold 300 shares on Sept 1, and used the proceed to pay for the income tax on the 1000 shares vested on Sept1… MOST companies do this automatically. Some companies offer the employee the option to transfer cash into their account before the vest date, so that shares won’t be sold…
This isn’t an issue for FB or a reason for why employees would be doing a panic sell. For practical purposes, employees most likely already paid for their taxes on the RSU shares. Second, RSU shares (unlike stock options) do have real value immediately at time of vesting..You own the shares delivered…They might lose value if you hold on to them, but they are real shares that you have. This is unlike an option contract in which you *might* have value only if the FMV is above the strike price of your option contract. In reality, I have a feeling that since some employees have seen their RSU shares plummet, they’ll probably end up holding on to them, hoping that the share price rebounds later…And people that joined less than a year probably have no vested RSU’s anyway.So they won’t pay any taxes until next year, when they vest, and the taxes will be determined based on the FMV of FB shares next year when they vest, not the IPO date…Again, the original poster on yahoo message board got that part wrong.
Side note: It’s kinda funny that FB would be issuing RSU’s instead of stock options…For me as an potential employee, it tells me there is a limited upside for a company that supposedly is targeted for marked growth… Fail!
Most companies are starting to offer RSU in lieu of stock options to normal employees…So for folks that end up switching employers some time in the future and wondering what it means in terms of taxes…Here… Better to be prepared first and plan accordingly.
Note RSU differ from “restricted stock”…Most normal employees will most likely get RSU, not “restricted stock”.
Some key differences between RSU and “restricted stock” is for RSU, you don’t get dividend (typically) while you wait for vesting (although some companies do), there is no 83(b) election, and you don’t get voting rights while unvested.
