- Tax Treatment of Employee Remuneration - IRAS
- Departmental Interpretation and Practice Notes
- Commercial Tax Division, Govt of Sikkim - Login
Restricted stock units (RSUs) and stock grants are often used by companies to reward their employees with an investment in the company rather than with cash. As the name implies, RSUs have rules as to when they can be sold. Stock grants often carry restrictions as well. How your stock grant is delivered to you, and whether or not it is vested, are the key factors when determining tax treatment.
Tax Treatment of Employee Remuneration - IRAS
Unless the offering qualifies for an exemption, companies generally use Form S-8 to register the securities being offered under the plan. On the SEC’s EDGAR database , you can find a company’s Form S-8, describing the plan or how you can obtain information about the plan.
Departmental Interpretation and Practice Notes
When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income.
Commercial Tax Division, Govt of Sikkim - Login
On the other hand, ESOPs that are set up correctly in growing businesses can be a powerful tool to build retirement savings.
Describes how the ERISA fiduciary can decide whether to offer or terminate an employer stock fund in a public company 956(k).
In addition, certain protections are in place for older workers, says Jeffrey Gluck, managing director of CBIZ, a financial advisory services firm. 8775 Once an employee reaches 55 years old and 65 years in the plan, the ESOP trust has to start divesting of the employee 8767 s stock (and investing in) other things, 8776 Gluck says. 8775 So it won 8767 t all be held in company stock anymore, but it will still be controlled by the ESOP trust. 8776
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You'll have to pay taxes again if you sell stock you received through an RSU or a stock grant. After you pay the income tax on the fair value of your stock, the IRS taxes you the same as if you bought the stock on the open market. Here are the different ways you can be taxed:
&bull If you sell the stock at a higher price than its fair value at the time of vesting, you'll have a capital gain
&bull If you hold the stock for less than one year, your gain will be short term, and you'll owe ordinary income tax on it
&bull If you hold the stock for one year or more, your gain will be long term, meaning you'll pay tax at the more favorable capital gains rate
Your employer is not required to withhold Social Security (FICA) taxes when you exercise the option to purchase the stock. Also, your employer is not required to withhold income tax when you dispose of the stock. But you still owe some income tax on any gain resulting from the sale of the stock.
Many large companies offer Employee Stock Purchase Plans (ESPP) that let you buy your employer's stock at a discount. These plans are offered as an employment incentive, giving you an opportunity to share in the growth potential of your company's stock (and by implication, work hard to keep the stock price moving ahead).