Home / Articles / Awards of RSUs can provide tax deferral opportunity

Awards of RSUs can provide tax deferral opportunity

June 28, 2016

Share:

Executives and other key employees are often compensated with more than just salary, fringe benefits and bonuses: They may also be awarded stock-based compensation, such as restricted stock or stock options. Another form that’s becoming more common is restricted stock units (RSUs). If RSUs are part of your compensation package, be sure you understand the tax consequences — and a valuable tax deferral opportunity.

RSUs vs. restricted stock

RSUs are contractual rights to receive stock (or its cash value) after the award has vested. Unlike restricted stock, RSUs aren’t eligible for the Section 83(b) election that can allow ordinary income to be converted into capital gains.

But RSUs do offer a limited ability to defer income taxes: Unlike restricted stock, which becomes taxable immediately upon vesting, RSUs aren’t taxable until the employee actually receives the stock.

Tax deferral

Rather than having the stock delivered immediately upon vesting, you may be able to arrange with your employer to delay delivery. This will defer income tax and may allow you to reduce or avoid exposure to the additional 0.9% Medicare tax (because the RSUs are treated as FICA income).

However, any income deferral must satisfy the strict requirements of Internal Revenue Code Section 409A.

Complex rules

If RSUs — or other types of stock-based awards — are part of your compensation package, please contact us. The rules are complex, and careful tax planning is critical.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

How to end the headaches of SLFRF reporting

Article

2 Min Read

Clean Vehicle Credit Comes with Caveats

Article

2 Min Read

IRS Offers Penalty Relief for 2019, 2020 Tax Years

Article

2 Min Read

Benefits of Using a Lease Management Software Tool to Implement ASC 842

Article

2 Min Read

How Unrelated Business Income Tax (UBIT) Works for Not-for-Profits

Article

2 Min Read

ESOP evaluation from a succession planning perspective

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.
  • Hidden
  • This field is for validation purposes and should be left unchanged.