RSUs: How you are taxed

Transcript of the video:

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Restricted Stock Units: How You Are Taxed

Narrator [off-screen]: An RSU, or restricted stock unit, is a promise from an employer to award employees with shares of the company's stock…

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An RSU grant is a promise from an employer to award employees with shares of the company's stock.

Narrator [off-screen]: …and a way to share in your company's potential financial success.

The man and woman each place their pieces of the puzzle on the building. A yellow halo effect surrounds the building once it is complete, and a flagpole with a money sign on the flag appears at the top of the building.

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And a way to share in your company's financial success.

Narrator [off-screen]: RSUs have value once they vest, so it's important to know what to expect when it comes to taxes.

The camera pans down the screen where a diagram animates in. A red circle with "RSU Grant" and an icon of a certificate is in the center. A line emerges from the icon and moves down to form the next layer of the diagram. Blue circles with "Grant," "Vest," and "Sale" appear.

Narrator [off-screen]: The lifecycle of an RSU grant can be broken into three parts: grant, vest, and sale.

From the Grant circle, a line animates down toward a box.

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Stage 1

Receive RSU Grant

Not a taxable event

Narrator [off-screen]: The first stage, receiving your RSU grant, is not typically taxed, so you don't need to worry about taxes at this time.

A line extends from beneath that box down toward a second box. In that box, certificate icons animate in and turn into dollar bills.

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Stage 2

RSU Vests

Taxable event

Narrator [off-screen]: The next stage is when your RSUs vest. This is a taxable event because RSUs turn into company stock upon vesting and that stock is worth money and is considered compensation.

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Taxes paid will be based on the Fair Market Value

Narrator [off-screen]: You'll need to pay income taxes on this compensation. This will be based on the fair market value of the stock on the vesting date. You'll see this income and taxes paid for that year on your W2 or relevant tax statement.

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Income and taxes paid will appear on your W2

The arrow continues toward a spinning globe. The globe rotates and reveals an illustration of a city skyline. Two lines extend down at an angle from the skyline. One line leads to a circle that has certificate icons; the other leads to a circle with dollar icons. A blue box animates in from the upper right corner.

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Shares set aside by company

Covers tax responsibility

Be sure to check with your company and tax advisor for guidance related to your situation.

Narrator [off-screen]: Depending on what country you're in, your company may be required to withhold taxes at the time of vest, meaning they would set aside the minimum amount of shares to cover your taxes. You could owe more depending on your individual situation.

A line draws out from the right and moves across the screen towards an illustration of a computer. A search bar on an animated dashboard pops up, followed by a red bar on the screen that says "Vested." A line draws down from the screen and creates another decision tree featuring two circles. On the left the circle says "Hold" and on the right it says "Sell."

Narrator [off-screen]: You can find your tax statements in the Equity Awards Center. Once your shares vest, it's your choice whether you hold onto them or sell them. If you decide to sell, you may have additional taxes.

A line draws down from the "Sell" circle a creates a graph over time. The x-axis along the bottom is marked by "Vesting Date" and "Sell Date." A red line shows a downward trend over time. On the y-axis the graph ends beneath the line. A blue box appears in the upper right-hand corner.

Narrator [off-screen]: If the stock is sold at a price that's lower than the value on the vesting date, this means the shares went down in value, and you would realize what is called a capital loss.

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Tax loss harvesting can be complicated and you may want help from a tax professional.

The red line deletes and redraws along the axis in a positive trend over time.

If the value goes up, the difference between the Fair Market Value of the stock when you sell, and the Fair Market Value of the shares vested will be your profit. That is what you'll need to pay additional taxes on.

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Narrator [off-screen]: Taxes you pay when you sell are called capital gains taxes. How much you pay will depend on the amount of time that passed between the day they vested and the day you sell.

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Capital Gains:

Taxes you pay if the value of shares went up when you sell.

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Narrator [off-screen]: There are two types of capital gains taxes. Short-term capital gains taxes are when you're selling shares and it's been less than one year since they vested and became yours. They're taxed at the same rate as your ordinary income.

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Short Term:

Less than 1 year since vesting

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Narrator [off-screen]: But, if you wait for longer than one year, you'll pay long-term capital gains taxes.

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Long Term:

Greater than 1 year since vesting

Be sure to check with your tax advisor for rates based on your location.

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Narrator [off-screen]: They tend to be at a better rate, so you'll keep more of the money you make from your sale.

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Long Term:

Taxed at a better rate

A line emerges to the right. A red dot appears on that line, and above that line a circle animates in with an icon of a certificate inside. The line continues to draw out. A new red dot appears, and the circle with the certificate follows it down the line.

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There are some advantages to holding onto your shares.

The line trends downward to create a new dot. The circle with the certificate follows. Then the line moves upward, levels off, and then trends down again. Red dots mark the turning points.

Narrator [off-screen]: So waiting for more than a year to sell your shares may have its benefits because you may pay less in taxes. But it's important to remember that there are trade-offs to holding.

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However, holding can open you up to more risk.

Narrator [off-screen]: The longer you keep your shares, the more market risk you open yourself to with the possibility that the stock could decrease over time.

The line ends at a red dot, and the circle with the certificate stops above the red dot.

Onscreen text: There's always the possibility that the stock could decrease over time.

The certificate and text on screen animate away, and a signpost animates in from the red dot. The sign features an arrow pointing left.

Narrator [off-screen]: If you have any specific tax questions, be sure to chat with your financial advisor.

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Questions? Consult with your financial advisor.

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Narrator [off-screen]: Still have questions? Give us a call.

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Still have questions?

To talk to a Schwab Stock Plan Specialist, call 800-654-2593.

International Participants, call +1-602-355-3408.

Narrator [off-screen]: Or, from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

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Or, from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

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Own your tomorrow^®

FOR GENERAL INFORMATIONAL PURPOSES ONLY.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, legal advisor, or investment manager.

Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and executives through Charles Schwab & Co., Inc. ("Schwab"). Schwab, a registered broker-dealer, offers brokerage and custody services to its customers.