what happens to rsu when a company is sold

RSUs: Essential Facts

Make the near of your restricted stock units. Learn these essential facts, including basic concepts, vesting schedules, and tax treatment.

Restricted Stock Units: The Essential Facts

Matt Simon

Key points:

• Restricted stock units (RSUs) are a fashion your employer can grant yous visitor shares.
• RSUs are nearly always worth something, fifty-fifty if the stock cost drops dramatically.
• RSUs must vest before you tin can receive the underlying shares. Chore termination unremarkably stops vesting.

With RSUs, you lot are taxed when you receive the shares. Your taxable income is the market value of the shares at vesting. If you have received restricted stock units (RSUs), congratulations—this is a potentially valuable disinterestedness award that typically carries less hazard than a stock option due to the lack of leverage. Unlike stock options, which can go "underwater" and lose all practical value with a falling stock price, RSUs are about e'er worth something, even if the stock price drops dramatically. Yet, while the concept of RSUs is simple, there are technical points in these grants that you must understand to brand the most of them.

This article presents the essential facts of RSUs, including the basic concepts, the workings of vesting schedules, and the tax treatment.

Basic Concepts

Restricted stock units are a way an employer can grant company shares to employees. The grant is "restricted" because information technology is subject to a vesting schedule, which can exist based on length of employment or on functioning goals, and because it is governed by other limits on transfers or sales that your company can impose.

Y'all typically receive the shares later on the vesting date. Only then practice you have voting and dividend rights. Companies can and sometimes do pay dividend equivlent payouts for unvested RSUs. Unlike actual dividends, the dividends on restricted stock will exist reported on your W-2 as wages, unless you lot made a Section 83(b) election, so they won't be eligible for the lower preferential rate currently available in revenue enhancement year 2012 on qualified dividends.

Dissimilar stock options, RSUs ever have some value to you, even when the stock toll drops below the cost on the grant date.

Example: Your visitor grants yous ii,000 RSUs when the market toll of its stock is $22. By the time the grant vests, the stock cost has fallen to $20. The grant is then worth $twoscore,000 to you earlier taxes.

Vesting Schedules

Vesting schedules are ofttimes time-based, requiring you to work at the company for a certain period before vesting tin can occur.

Example: You are granted five,000 RSUs. Your graded vesting schedule spans four years, and 25% of the grant vests each year. At the get-go anniversary of your grant engagement and on the same date over the subsequent three years, 1,250 shares vest. Once each portion vests, you can sell the shares.

The case above uses a "graded" vesting schedule, i.east., the vesting of the grant in series portions. Vesting schedules tin can also have "cliff" vesting, in which 100% of the grant vests all at once subsequently you have completed a stated service period. The vesting schedule tin also (or instead) exist functioning-based, e.g., tied to company-specific or stock-market place targets.

Nigh graded-vesting grants have restrictions that lapse over a period of three to five years. In addition to providing for regular vesting, a graded vesting schedule may, alternatively, have varying intervals between vesting dates:

Example: You are granted twenty,000 RSUs. One year afterward the grant appointment, 25% of the shares vest (v,000). The remainder (15,000) vest every month (625 a month) over the next two years.

At newly public companies, grants made before the initial public offer (IPO) may also require a liquidity outcome (i.e., the IPO itself) to occur earlier the shares vest. Once the liquidity event has occurred, the shares vest 180 days later.

Job termination almost e'er stops vesting. The only exception occurs in certain situations when vesting may be immune to continue or may even exist accelerated (e.g., decease, inability, or retirement, depending on your plan and grant agreement).

Tax

With RSUs, yous are taxed when the shares are delivered, which is almost always at vesting. Your taxable income is the marketplace value of the shares at vesting. You accept compensation income field of study to federal and employment tax (Social Security and Medicare) and any state and local revenue enhancement. That income is subject to mandatory supplemental wage withholding. Withholding taxes, which for U.S. employees appear on Form West-2 along with the income, include the following:

• federal income tax at the flat supplemental wage rate, unless your company uses your Due west-4 rate
• Social Security (up to the yearly maximum) and Medicare
• land and local taxes, when applicable

A company may offer a option of ways to pay taxes at vesting, or information technology may apply a single mandatory method. The most common practise is taking the amount from the newly delivered shares past surrendering stock back to the visitor. This holds or "tenders" shares to embrace the taxes under a net-settlement process, and company cash is used for the payroll tax deposit.

When you later sell the shares, y'all volition pay uppercase gains taxation on any appreciation over the market price of the shares on the vesting appointment.

RSU Taxation For Non-U.S. Employees: Exterior the U.South., for employees in other countries, the timing of tax for restricted stock units is similar. Income and social taxes are based on the value of the shares at the time of commitment (not grant), and uppercase gains tax applies to the eventual sale of the shares. Available in the Schwab Equity Awards Center is the Global Taxation Guide, which details the specific revenue enhancement treatment in various countries throughout the world.

Example Of RSU Life Bike: The following hypothetical example outlines the entire life cycle of an RSU grant. Information technology is important for you lot to contact your taxation advisor virtually the affect of these events on your taxes.

You receive 4,000 RSUs that vest at a rate of 25% a year, and the market price at grant is $xviii.

The stock price at vesting in twelvemonth one is $20 (1,000 ten $20 = $20,000 of ordinary income), at year two $25 ($25,000), at year three $30 ($30,000), and at yr four $33 ($33,000); the full is $108,000, and each increment is taxable on its vesting engagement as compensation income when the shares are delivered.

You sell all the stock ii years after the last shares vest, when the cost is at $l ($200,000 for the iv,000 shares). Your capital gain is $92,000 ($200,000 minus $108,000), which is reported on your tax return on Form 8949 and Schedule D. If you hold the shares for more than one twelvemonth subsequently share delivery, the sales proceeds volition be taxed at the long-term capital gains rate.

Matt Simon is the Editor and Content Managing director at myStockOptions.com.

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Source: https://www.schwab.com/public/eac/resources/articles/rsu_facts.html

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