Ok, so this isn’t exactly budgeting, nor exactly taxes, but I figure it might go here since I’d be trying to figure out what they mean for my long term investing.
Talk to me about Restricted Stock as compensation. What do I need to know other than vesting schedules, market volatility, and taxes implications?
Not a clue. You actually might get more response to this over at the other place.I know lots of folks over there have dealt with it.
@aaronpk has had to deal with these. I haven’t had them myself, so I only know about them in theory not practice.
Also, gonna recommend the other place - that’s where I would ask.
What’s restricted about them? What does the U stand for?
(Umm, I may not be very helpful in this discussion).
As far as I know those are the things to be concerned with.
The taxes on these are really confusing. (I haven’t actually filed my 2019 taxes yet which is the first year I had any vest, so I’m looking forward to that 
)
Oh and sometimes the company will have a “blackout period” where you can only sell the stock within a certain window every quarter or 6 months. (Right now I can sell mine from June 1 to July 15 for example.)
Ok, so Restricted Stock and Restricted Stock Units are actually two different things. I can’t speak at all to Restricted Stock but I do get RSUs on a yearly basis…if that’s what you’re talking about the general rule is to treat them as a cash bonus so if you wouldn’t buy company stock with the money sell immediately. I wouldn’t so I do and the tax implications are extremely simple since shares are withheld for taxes at vesting (I believe this is standard, but you might want to confirm your company would do this as well). On the other hand, tthere are some special rules around meeting retirement qualifcations or leaving the company (depending on terms) where you can get advance vesting which makes taxes trickier. Neither of those have applied to me so I haven’t looked into them, but I’ve had friends be surprised before so it’s probably worth checking how your company handles that.
ETA: It also matters if the RSUs are granted as X dollars of stock or X units of stock…can make market volatility more interesting 
Oh yeah I forgot that they sell shares to cover taxes when the shares are granted. What I’m not clear on is how selling the remaining shares later will affect my taxes.
Excellent point. Found the other thing I was curious about over there with a search. Massive victory to not interact with them.
So it will look something like this:
RSUs with $50K value vested. $50K reported as ordinary income. $15K paid in ordinary income tax, FICA, etc. $35K worth of stock deposited into your brokerage account. You sell it the next day for $35,100. You get a 1099 at tax time showing a sale of $35,100 with no basis reported to IRS. When you do your taxes, you report a sale of stock with $35,100 proceeds and $35K basis, resulting in $100 short term capital gain.
And a big thank you to all you folks who replied so quickly! I’m feeling much more comfortable with the idea at this point
At the end of the day they’ll be giving you shares, not dollars. It’s better to think of it as them giving you shares, not thinking about the current cash value, since the cash value will change over time.
So if you get 4000 RSUs over a 4 year period, vesting every quarter with a 1 year cliff, that means after the first year you’ll suddenly have 1000 shares in your account, some of them will be sold off for taxes, leaving you with a pile of shares that you can keep or sell. Then every quarter you’d get another 250 granted, minus the ones sold for taxes again.
The other thing to keep in mind is that this is something you can negotiate, since the company may be able to be flexible on some of the terms. I wish I had realized that earlier, since I had been working as a contractor with them for almost a year before I was hired, so I may have been able to argue for backdating the vesting schedule for example.
Taxes work the same as if you bought the shares, <1yr short term capital gains, >1yr long term capital gains. The part that gets ugly is calculating cost basis from what I’ve seen…a lot of brokerages seem to report it as $0 so if you’re using tax software you have to manually update with FMV and shares sold for taxes or you get double-taxed (this comes up every year at tax time on our non-work channel at work and there’s always someone who has to go back and amend).
At some point my company switched from ESPP to RSUs. It was a really good change because RSUs are always worth something after they vest, but ESPPs can be underwater and worth nothing. I think they always took a third out for taxes at vesting time. Also it was always considered a bonus and the number of RSUs I would be awarded every year depended on the stock price, so they had a cash amount in mind and translated that to number of shares which would vary every year.
Oh yeah that was us, had to amend several years.
Echoing what everyone else has said. I always treat RSU’s as an unplanned bonus (I mean…I keep track of when they vest but the promise of them vesting soon has never kept me in a job I wanted to leave). My current company has the worst schedule that I’ve seen…1/4 vest after 2 years and then you get another 1/4 each year after that. So once you’ve been with the company 5-6 years you start getting a nice little bonus each year but early on it’s not much.
All three companies that have granted me RSUs have taken out taxes when they vest. The cost basis is set at the price on the day they vest so if you sell them within 1-2 days you pretty much don’t have to worry about it. One thing to watch out for is selling right away if you’re considered an insider. I had to wait 2 weeks after my last vest because earnings call was right around the corner so the stock price did fluctuate a bit after earnings call but better that than trouble with the SEC!
I’ve always gotten clear tax documents for RSU sales that note the vesting price and the sell price. The total grant amount shows up in my W2 as income and the total taxes sold off when they vest shows up on my W2 as income so I only report the information from when I sell of the vested shares because the rest is already taken care of.
I’ve had cost basis issues in the past with ESPPs but never with RSUs.