Fact Check: Are RSUs taxed?

Are RSUs Taxed? A Detailed Examination

Introduction

The claim in question is whether Restricted Stock Units (RSUs) are taxed. RSUs are a form of compensation offered by employers to employees, typically as part of a stock-based compensation plan. This article explores the tax implications of RSUs, particularly focusing on when and how they are taxed.

What We Know

1. Taxation at Vesting: RSUs are generally taxed as ordinary income when they vest. This means that the fair market value of the shares at the time of vesting is included in the employee's taxable income for that year 168.

2. Capital Gains Tax: After the RSUs vest and the employee holds the shares, any subsequent gain or loss upon selling the shares is subject to capital gains tax. The rate applied depends on how long the shares are held after vesting 110.

3. State and Local Taxes: In addition to federal taxes, state and local taxes may also apply to RSUs, which can vary significantly by jurisdiction 46.

4. Social Security and Medicare Taxes: Employees are also subject to Social Security and Medicare taxes on the income recognized from vested RSUs 45.

5. IRS Guidance: The IRS has issued guidance clarifying the taxation of RSUs, noting that they are considered compensation and are taxed accordingly 5.

Analysis

Source Evaluation

• Cordant Wealth Partners: This source provides a clear explanation of RSU taxation and offers strategies for tax management. However, it is a financial advisory firm, which may introduce a bias towards promoting tax strategies that could benefit their clients 1.

• KPMG: As a reputable global network of professional services firms, KPMG's articles are generally reliable. However, the complexity of tax law means that interpretations can vary, and their focus on employment tax may not cover all aspects of RSU taxation comprehensively 29.

• TurboTax: This source is widely recognized for tax preparation software and provides practical advice on reporting RSUs. However, it may not delve deeply into the nuances of tax law, focusing instead on user-friendly guidance 3.

• Tax Shark Inc.: This source offers a detailed breakdown of federal and state tax rules for RSUs. It appears to be a specialized tax advisory service, which may lend it credibility, but it is essential to consider whether it has a vested interest in promoting specific tax strategies 4.

• Wagner Law Group: This legal source discusses IRS guidance on RSUs, providing a legal perspective on the taxation of these units. Legal sources can be reliable, but they may also have a specific agenda or bias depending on their clientele 5.

• Dimov Tax: This source provides a comprehensive overview of RSU taxation, including the stages of taxation. It appears to be a tax advisory firm, which could introduce bias, but it presents factual information 6.

• Investopedia: Known for its financial education content, this source provides a balanced overview of RSUs and their tax implications. However, it is essential to verify the accuracy of the information against primary tax law sources 7.

• Harness Wealth: This source summarizes the tax implications of RSUs effectively but may not provide in-depth analysis. As a financial advisory platform, it could have a bias towards promoting investment strategies 8.

• Pulley: This guide offers a straightforward explanation of RSU taxation, but as a company focused on equity management, it may have a vested interest in presenting the information in a favorable light for employees considering RSUs 10.

Methodology and Evidence

The evidence presented across these sources is generally consistent regarding the taxation of RSUs at vesting and the subsequent capital gains tax upon sale. However, the varying degrees of detail and the potential biases of the sources necessitate a careful examination of the information.

Additional information that would be helpful includes:

• Specific examples of how different states tax RSUs.
• Detailed IRS regulations or publications regarding RSUs.
• Case studies or real-world examples illustrating the tax implications for employees in various scenarios.

Conclusion

Verdict: True

The claim that Restricted Stock Units (RSUs) are taxed is substantiated by multiple reliable sources. Key evidence includes the consensus that RSUs are taxed as ordinary income upon vesting, with the fair market value of the shares included in the employee's taxable income for that year. Additionally, any gains realized from the sale of these shares are subject to capital gains tax, further confirming the tax implications of RSUs.

However, it is important to note that while the general principles of RSU taxation are well-established, there are nuances that can vary based on individual circumstances, such as state and local tax laws. The complexity of tax regulations means that interpretations may differ, and the information provided by various sources may reflect specific biases or agendas.

Limitations in the available evidence include a lack of comprehensive examples of state-specific taxation and the need for more detailed IRS guidance on RSUs. Readers are encouraged to seek personalized advice from tax professionals and to critically evaluate the information presented in this article and other sources.

Sources

1. Cordant Wealth Partners. "RSU Taxes Explained + 4 Tax Strategies for 2023." Link
2. KPMG. "Timing of employment taxes for RSUs under current SEC settlement." Link
3. TurboTax. "How to Report RSUs or Stock Grants on Your Tax Return." Link
4. Tax Shark Inc. "When are Restricted Stock Units (RSUs) Taxable? Avoid this Mistake + FAQs." Link
5. Wagner Law Group. "IRS Issues Guidance on Taxation of Restricted Stock Units to Employees." Link
6. Dimov Tax. "Restricted Stock Units: Understanding RSUs and Their Tax Implications." Link
7. Investopedia. "How Restricted Stock and Restricted Stock Units (RSUs) Are Taxed." Link
8. Harness Wealth. "Restricted Stock Units (RSUs): Everything You Need to Know." Link
9. KPMG. "Timing of employment taxes for RSUs under current SEC." Link
10. Pulley. "RSU Tax 101: How Restricted Stock Units Are Taxed." Link