News & Blog

July 8, 2016

Awards of RSUs Tax Deferral Opportunity

Tax Deferral Opportunity – RSU’s may be your solution

Tax issues are common considerations in creating compensation packages.  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 consequences — and a valuable 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. Call us to help you create win-win employee benefit packages.  412-278-2200.

Here is an article in Forbes.com and how Apple used RSUs.

 

 

The Rise of Fractional CFOs in Small Businesses
Commonly Missed Tax Deductions for Business Owners
Choosing the Right Business Structure
Understanding EV Tax Credits for 2024
Energy Tax Credits for 2024