Welcome to Curt's Chalk Talk, the executive acronym series. I'm Curt Sheldon from CL Sheldon and Company, and today we're going to talk about RSUs.
Now when I was a lieutenant, RSU stood for Runway Supervisory Unit. But that's not the case for you. It's going to stand for Restricted Stock Units.
And in a restricted stock unit plan, just like any other non-qualified plan, there is a substantial risk of forfeiture from what you receive from your employer. So in the case of restricted stock you need to stay with the company for a certain amount of time in order to get that stock, say five years, maybe, 20% vesting each year until you hit five years. Now when the restricted stock units become yours it is subject to income, social security and Medicare taxes. Now the good news is you'll probably be over the cap for social security taxes so you'll only pay Medicare and income taxes and your employer will sell some of the stock that you received to pay those taxes and those taxes will show up on your W-2 just like the income from the restricted stock becoming yours.
Now when you sell the stock it is treated like any other capital asset and you will pay either long-term or short-term capital gains depending on whether you've held it for more than one year or less than a year.
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