Restricted Stock Units (RSUs) are a type of equity compensation awarded to employees, typically by their employer. RSUs are generally granted but do not have immediate value; they vest over time or upon meeting specific milestones. Once vested, they convert into company shares.
RSUs are taxed as ordinary income at the time of vesting, based on the fair market value of the shares. This amount is included in the employee’s taxable income, and withholding taxes are often deducted automatically.
If the employee holds the shares after vesting, any future gains or losses are subject to capital gains tax upon sale. The holding period determines whether gains are taxed at short-term or long-term rates. Proper planning can help manage these tax implications effectively.
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