RSU taxation: when am I taxed, and how much?
Restricted Stock Units are different from stock options because instead of buying them at a particular strike price, you receive the actual shares of stock. They are taxed as ordinary income at the time that the restriction is lifted (you don't have to sell them to be taxed). Usually, you can choose to have a percentage of the stock withheld to cover tax withholding or pay for the withholding out of pocket (so you can retain all of your shares).
"Federal taxes are generally lower in Canada.  Canada's top federal income tax rate is 29%; the US rate is 35% and will go to 39.6% when Bush tax cuts expire.  The healthcare surcharge will kick in in a few years, pushing the top bracket by a few more points and over 40%. State/provincial taxes are lower in the US.  You may end up in the 12% bracket in New York City or around 10% in California or other ""bad"" income-tax states.  But Alberta is considered a tax haven in Canada and has a 10% flat tax.  Ontario's top rate is about 11%, but there are surtaxes that can push the effective rate to about 17%. Investment income taxes: Canada wins, narrowly.  Income from capital gains counts as half, so if you're very rich and live in Ontario, your rate is about 23% and less than that in Alberta.  The only way to match or beat this deal in the US in the long term is to live in a no-income-tax state.  Dividends are taxed at rates somewhere between capital gains and ordinary income - not as good a deal as Bush's 15% rate on preferred dividends, but that 15% rate will probably expire soon. Sales taxes: US wins, but the gap is closing.  Canada has a national VAT-like tax, called GST and its rate came down from 7% to 5% when Harper became the Prime Minister.  Provinces have sales taxes on top of that, in the range of 7-8% (but Alberta has no sales tax).  Some provinces ""harmonized"" their sales taxes with the GST and charge a single rate, e.g. Ontario has a harmonized sales tax (HST) of 13% (5+8).  13% is of course a worse rate than the 6-8% charged by most states, but then some states and counties already charge 10% and the rates have been going up in each recession. Payroll taxes: much lower in Canada.  Canadian employees' CPP and EI deductions have a low threshold and top out at about $3,000.  Americans' 7.65% FICA rate applies to even $100K, resulting in a tax of $7,650. Property taxes: too dependent on the location, hard to tell. Tax benefits for retirement savings: Canada.  If you work in the US and don't have a 401(k), you get a really bad deal: your retirement is underfunded and you're stuck with a higher tax bill, because you can't get the deduction.  In Canada, if you don't have an RRSP at work, you take the money to the financial company of your choice, invest it there, and take the deduction on your taxes.  If you don't like the investment options in your 401(k), you're stuck with them.  If you don't like them in your RRSP, contribute the minimum to get the match and put the rest of the money into your individual RRSP; you still get the same deduction.  Annual 401(k) contribution limits are use-it-or-lose-it, while unused RRSP limits and deductions can be carried forward and used when you need to jump tax brackets.  Canada used to lack an answer to Roth IRAs, but the introduction of TFSAs took care of that. Mortgage interest deduction: US wins here as mortgage interest is not deductible in Canada. Marriage penalty: US wins.  Canadian tax returns are of single or married-filing-separately type.  So if you have one working spouse in the family or a big disparity between spouses' incomes, you can save money by filing a joint return.  But such option is not available in Canada (there are ways to transfer some income between spouses and fund spousal retirement accounts, but if the income disparity is big, that won't be enough). Higher education: cheaper in Canada. This is not a tax item, but it's a big expense for many families and something the government can do about with your tax dollars. To sum it up, you may face higher or lower or about the same taxes after moving from US to Canada, depending on your circumstances.  Another message here is that the high-tax, socialist, investment-unfriendly Canada is mostly a convenient myth." The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.)  Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act:   they extended the rates, but only temporarily, so now we're looking at   tax hikes starting in 2013 instead, only the new top rate++ will be something   like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare   legislation). But the year and the rates' specifics aside, same thing   still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused. FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. I would ask your HR or benefits department to be certain, but here's how I read that without any specific knowledge of the situation: What is right to receive the RSU consideration? Company A was bought by Company B.  You had unvested Restricted Stock Units in A, which is now gone.  B is saying that you now have the right to receive consideration equivalent to the value of those RSUs in A. Since B is private, there's no publicly traded stock, so it will likely be in cash, but read the rest of the paperwork or talk to HR to be certain.   For example, if you had 100 RSUs vesting next year and the price of stock in A was $50 when the company was bought, those RSUs would be worth $5,000.  B is give you the right to consideration for those RSUs, hopefully for somewhere around $5,000.  That consideration is unvested, meaning you must stay employed until the vesting period in order to claim that right. If you are fired without cause (i.e. laid off), you will receive those unvested claims as compensation.   I assume the same will be applicable if employee leaves the company  Probably not.  In any situation, if you voluntarily leave a company, any unvested stock, RSUs, options, etc. are forfeited. "The best strategy for RSU's, specifically, is to sell them as they vest. Usually, vesting is not all in one day, but rather spread over a period of time, which assures that you won't sell in one extremely unfortunate day when the stock dipped. For regular investments, there are two strategies I personally would follow: Sell when you need. If you need to cash out - cash out. Rebalance - if you need to rebalance your portfolio (i.e.: not cash out, but reallocate investments or move investment from one company to another) - do it periodically on schedule. For example, every 13 months (in the US, where the long term cap. gains tax rates kick in after 1 year of holding) - rebalance. You wouldn't care about specific price drops on that day, because they also affect the new investments. Speculative strategies trying to ""sell high buy low"" usually bring to the opposite results: you end up selling low and buying high. But if you want to try and do that - you'll have to get way more technical than just ""dollar cost averaging"" or similar strategies. Most people don't have neither time nor the knowledge for that, and even those who do rarely can beat the market (and never can, in the long run)." "RSUs are not ""essentially cash"". ""R"" in the RSU stands for restricted. These awards have strings attached, and as long as the strings are attached - you don't really own the money. As such, most banks do not include RSUs in the income considerations. Some do, especially if they have a specific agreement with your employer (check your HR/benefits coordinator). Specifically for mortgage loan,  where the underwriting is very strict, I'm not aware of banks that include RSUs as income without a specific agreement with the employer as a perk. For credit cards/car loans, where you just need to write a number, they would probably care less. Some banks (but not all) consider past performance, and would include bonuses (and maybe RSUs) if you can show several consecutive years of comparable bonuses." Yes. You incur income tax on the RSU on they date they vest. At this point you own the actual shares and you can decide to sell them or to hold them. If you hold them for the required period, and sell them later, the difference between your price at vesting and the sales price would be taxed as long term capital gains. Caution: if you decide to hold, you are still liable to pay income tax in the year they vest. You have to pay taxes on income that you haven't made yet. This is fairly dangerous: if the stock goes down, you may lose a lot of this tax payment. Technically you could recover some of this through claiming capital losses, but that this is severely restricted: the IRS makes it much easier to increase taxes through gains than reducing taxes through losses. Here is how it should look: 100 shares of restricted stock (RSU) vest. 25 shares sold to pay for taxes. W2 (and probably paycheck) shows your income going up by 100 shares worth and your taxes withheld going up by 25 shares worth. Now you own 75 shares with after-tax money. If you stop here, there would be no stock sale and no tax issues.  You'd have just earned W2 income and withheld taxes through your W2 job. Now, when you sell those 75 shares whether it is the same day or years later, the basis for those 75 shares is adjusted by the amount that went in to your W2.   So if they were bought for $20, your adjusted basis would be 75*$20. The key for you  this year (2015) be aggressive in paying the taxes quarterly so that you do not have to do the quarterly filings or pay penalties for owing too much in taxes in future years.  The tax system has a safe harbor provision. If you have withheld or sent via the estimated quarterly  taxes an amount equal to 100% of the previous years taxes then you are safe. That means that if you end to the IRS in 2015 an amount equal to 100% of your 2014 taxes then in April 2016 you can avoid the penalties. You should note that the required percentage is 110% for high income individual.  Because you can never be sure about your side income, use your ability to adjust your W-4 to cover your taxes. You will know early in 2016 how much you need to cover via withholding, so make the adjustments. Yes the risk is what you over pay, but that may be what you need to do to avoid the quarterly filing requirements. From IRS PUB 17: If you owe additional tax for 2014, you may have to pay estimated tax   for 2015. You can use the following general rule as a guide during the year to   see if you will have enough withholding, or if you should increase   your withholding or make estimated tax payments.  General rule.    In   most cases, you must pay estimated tax for 2015 if both of the   following apply. You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2015 tax return, or 100% of the tax shown on your 2014 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2014 tax return must cover all 12 months. and  Estimated tax safe harbor for higher income taxpayers. If your 2014   adjusted gross income was more than $150,000 ($75,000 if you are   married filing a separate return), you must pay the smaller of 90% of   your expected tax for 2015 or 110% of the tax shown on your 2014   return to avoid an estimated tax penalty. After reading OP Mark's question and the various answers carefully and also looking over some old pay stubs of mine, I am beginning to wonder if he is mis-reading his pay stub or slip of paper attached to the reimbursement check for the item(s) he purchases.  Pay stubs (whether paper documents attached to checks or things received in one's company mailbox or available for downloading from a company web site while the money is deposited electronically into the employee's checking account) vary from company to company, but a reasonably well-designed stub would likely have categories such as Taxable gross income for the pay period: This is the amount from which payroll taxes (Federal and State income tax, Social Security and Medicare tax) are deducted as well as other post-tax deductions such as money going to purchase of US Savings Bonds, contributions to United Way via payroll  deduction, contribution to Roth 401k etc. Employer-paid group life  insurance premiums are taxable income too for any portion of the policy  that exceeds $50K. In some cases, these appear as a lump sum on the last pay stub for the year. Nontaxable gross income for the pay period: This would be sum total of the amounts contributed to nonRoth 401k plans, employee's share of group health-care insurance premiums for employee  and/or employee's family, money deposited into FSA accounts, etc. Net pay: This is the amount of the attached check or money sent via ACH to the employee's bank account. Year-to-date amounts: These just tell the employee what has been earned/paid/withheld to date in the various categories. Now, OP Mark said My company does not tax the reimbursement but they do add it to my running gross earnings total for the year. So, the question is whether the amount of the reimbursement is included in the Year-to-date amount of Taxable Income. If YTD Taxable Income does not include the reimbursement amount,  then the the OP's question and the answers and comments are moot; unless the company has really-messed-up (Pat. Pending) payroll software that does weird things, the amount  on the W2 form will be whatever is shown as YTD Taxable Income  on the last pay stub of the year, and, as @DJClayworth noted cogently, it is what will appear on the W2 form that really matters. In summary, it is good that OP Mark is taking the time to investigate the matter of the reimbursements appearing in Total Gross Income, but if the amounts are not appearing in the YTD Taxable Income, his Payroll Office may just reassure him that they have good software and that what the YTD Taxable Income says on the last pay stub is what will be appearing on his W2 form.  I am fairly confident that this is what will be the resolution of the matter because if the amount of the reimbursement was included in Taxable Income during that pay period and no tax was withheld, then the employer has a problem with  Social Security and Medicare tax underwithholding, and nonpayment of this tax plus the employer's share to the US Treasury in timely fashion. The IRS takes an extremely dim view of such shenanigans and most employers are unlikely to take the risk. It seems that you are misunderstanding how your taxes are calculated. You seem to be under the impression that once you pass $37,450 annual income, ALL of your income will be taxed at 25%. However, in reality, only the income you earn above that amount will be taxed at 25%. You can use this chart to determine exactly how much federal tax you will pay;  As you can see, if you earned, $37,500 in a year, you would only be charged 25% taxes on $50 (and you will pay 15% on the amount between $9226 and $37450, and 10% on the amount from $0 to $9225, which is $5126.25 when summed together). Long ago when I was applying for my first mortgage I had to list all my income and assets. At the time I had some US Savings Bonds from payroll deduction. I asked about them. The loan officer told me that unless I was willing/planning on selling them to make the down payment, they were immaterial to the loan application. So unless you have a habit of turning RSUs into cash, or are willing to do so for the down payment, it is no different from having money in a 401K or IRA: the restrictions on selling them make them illiquid. I have now filed my taxes and am able to report back with precisely what took place. To summarize, my situation was the following (before filing taxes): As it turns out, if I have $4x of NRTC's, it is not $4x that I can redeem. It is 15% of $4x that I can redeem to be able to get a tax refund. For the sake of simplicity, let's say I have $10x NRTC's instead of $4x NRTC's. That gives me $1.5x as the actual redeemable amount. I will get $x back on my refund since I have $1.5x available. Have I understood the system correctly? Since $x is a substantial amount, I want to know if I can factor this in as money that will be coming in. In summary, the only thing I didn't know before filing my taxes was the 15% rule! Most of the time, your tax only reduces by the current marginal rate - meaning you would only reduce your tax by 28% to 25% depending on which part of the bracket you're in. However, in the area around 100k, there are cases where reductions will have more of a marginal effect than that.  You'll never reduce it more than 100%, but you can reduce it by 35-40% despite being in the 25% bracket. That is because of certain deductions and credits which phase out beginning around 80k-120k; things like the IRA deduction, the Child Tax Credit, Childcare Tax Credit, and similar.  Since many of them phase out in this range, additional dollars cost you your marginal rate (25%) plus the percentage of the credits or deductions which phase out here, which might bring you up another 10% or so. It looks like it has to deal with an expiration of rights as a taxable event. I found this link via google, which states that  Not only does the PSEC shareholder have a TAXABLE EVENT, but he has   TWO taxable events. The net effect of these two taxable events has   DIFFERENT CONSEQUENCES for DIFFERENT SHAREHOLDERS depending upon their   peculiar TAX SITUATIONS. The CORRECT STATEMENT of the tax treatment of unexercised PYLDR rights   is in the N-2 on page 32, which reads in relevant part as follows: “…, if you receive a Subscription Right from PSEC and do not sell or   exercise that right before it expires, you should generally expect to   have (1) taxable dividend income equal to the fair market value (if   any) of the Subscription Right on the date of its distribution by PSEC   to the extent of PSEC’s current and accumulated earnings and profits   and (2) a capital loss upon the expiration of such right in an amount   equal to your adjusted tax basis (if any) in such right (which should   generally equal the fair market value (if any) of the Subscription   Right on the date of its distribution by PSEC).” Please note, for quarterly “estimated taxes” purposes, that the   DIVIDEND taxable events occur “ON THE DATE OF ITS DISTRIBUTION BY PSEC   (my emphasis),” while the CAPITAL LOSS occurs “UPON EXPIRATION OF SUCH   RIGHT” (my emphasis). They do NOT occur on 31 December 2015 or some   other date. However, to my knowledge, neither of the taxable events he mentions would be taxed by 4/15. If you are worried about it, I would recommend seeing a tax professional. Otherwise I'd wait to see the tax forms sent by your brokerage.