What Are RSUs on Form W-2?
RSUs on Form W-2 Explained
Restricted stock units (RSUs) are company shares granted to employees. RSUs on Form W-2 indicate that shares have been delivered to you, which usually happens after vesting.
Learn more about what RSUs on Form W-2 mean for you and your taxes.
What Are RSUs on Form W-2?
RSUs are given to employees as part of their compensation. These shares aren't transferred to the employees until certain conditions have been met, usually a term of employment. When employees satisfy the conditions, they are considered vested in their stock options and the RSUs are transferred to them.
RSUs aren't taxable until they're transferred to the employee. At that point, the entire value of the stock is considered ordinary income. The fair market value of the stock becomes part of their wages for the year and is reported on their W-2 form at tax time.
Who Uses RSUs on Form W-2?
Your W-2 form is how your employers report your income to the IRS. You also receive copies to include when you file your federal, state, and local taxes.
When RSUs are transferred to you, they're considered income for the tax year you receive them. That means your RSUs are subject to withholding for federal and state income tax, Social Security and Medicare taxes, and any other payroll-related taxes. This can create problems with over- or under-withholding that you must adjust for in your own tax payments.
If your employer includes the restricted stock income with your regular pay for the pay period, a higher percentage of your pay is deducted for tax withholding and might result in your wages being over-withheld.
However, if your employer includes the RSUs as a bonus or supplemental pay, your wages could be under-withheld.
Employers withhold at a flat rate of 22% on the first $1 million of supplemental wages paid out during the calendar year. Once supplemental wages for the year exceed $1 million, employers withhold at a flat rate of 37%. Depending on your tax bracket, the 22% flat rate could result in too little being withheld for taxes.
If you find your taxes have been over- or under-withheld, consider filing a new Form W-4 with your employer to adjust your withholding.
How to Read RSUs on Form W-2
The value of RSUs is typically recorded in Box 14 of the W-2, which is labeled "Other." Box 14 doesn't have a standard list of codes, which allows employers to list any description they need. You may see the value of your vested stock followed by "RSU."
However, since RSUs are considered part of your wages, they're also already included in Box 1, which lists your wages.
Let's say you have $234,567 reported in Box 1 as wages and $12,345 reported in Box 14 labeled as RSUs. The $12,345 has been included already in the $234,567 amount. You don't need to add the RSUs in Box 14 to your wages when you file your taxes.
You may also receive dividends on your RSUs. A dividend is a payment made to shareholders from company profits. Any dividends you receive on RSUs are considered employee income and should only be reported on your W-2. If you receive a 1099-DIV for the value of your RSU dividends, list them on your Schedule B with a note that you have included them as wages.
Tax forms that deal with other types of employee stock include Form 3921, which reports the basis information for incentive stock options, and Form 3922, which reports basis information for employee stock purchase plan shares.
What to Know About Selling RSUs
Once you are vested in your RSUs, you can either retain the stock or sell it in the future. This will require you to keep records and use additional forms in reporting your taxes.
First, you'll need to record your basis in RSUs, which is the amount paid for the stock plus the amount included as taxable income. In the previous example, you had at least $12,345 of basis since that's the amount reported on Form W-2.
When the shares are sold, calculate the gain or loss on the investment by subtracting the basis from the sale proceeds. Report the sale by filing Schedule D and Form 8949.
- Restricted stock units (RSUs) are company shares granted to employees. RSUs on Form W-2 indicate that shares have been delivered to you, which usually happens after vesting.
- RSUs aren't taxable until they're transferred to the employee. The fair market value of the stock becomes part of their wages for the year and is reported on their W-2 form at tax time.
- Since RSUs are considered income, your employer must withhold taxes. If your employer withholds too much or too little, consider filing a new Form W-4.
- RSUs are in Box 14 of your W-2. They are already included in your total wages, which are found in Box 1.