What Are RSUs on Form W-2?

RSUs on Form W-2 Explained

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Restricted stock units (RSUs) are company shares granted to employees. RSUs that appear on Form W-2 indicate that shares have been delivered to you, which usually happens after vesting. This is a taxable event with implications that can affect withholding from your paychecks and your tax liability when you file your tax return.

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. Employees are considered vested in their stock options when they satisfy the conditions, and the RSUs are transferred to them. RSUs aren't taxable until this occurs.

The entire value of the stock is considered ordinary income after RSUs have been transferred. The fair market value of the stock becomes part of the employee's wages for the year and it's reported on their W-2 form at tax time.

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Who Uses RSUs on Form W-2?

Your employer reports your income to you and to the IRS on your Form W-2. You'll receive copies providing you with the information you'll need to prepare your federal and state tax returns.

RSUs are considered income for the tax year in which they're transferred to you. They're subject to withholding for federal and state income tax, Social Security and Medicare taxes, and any other payroll-related taxes.

This can create problems that you should adjust for in your own estimated tax payments or on your Form W-4. A higher percentage of your pay is deducted for tax withholding and might result in your wages being over-withheld if your employer includes the restricted stock income with your regular pay for the pay period. But your wages could be under-withheld if your employer includes the RSUs as a bonus or supplemental pay.

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%. The 22% flat rate could result in too little being withheld for taxes, depending on your tax bracket.

Consider submitting an amended Form W-4 to your employer to adjust your withholding if you think that your taxes are being over- or under-withhold.

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. This allows employers to enter any description they like, but you might see the value of your vested stock followed by "RSU."

RSUs are considered part of your wages, so they're also already included in Box 1 of your W-2, which reports 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, so you don't have to add the RSUs in Box 14 to your wages when you file your taxes.

You might 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. List them on your Schedule B with your tax return with a note that you've included them as wages if you receive a 1099-DIV for the value of your RSU dividends.

What to Know About Selling RSUs

You can either retain the stock or sell it after you're vested in your RSUs. This will require that you keep records and use additional forms when reporting your income and filing your tax return.

You must record your basis in the RSUs, which is the amount paid for the stock plus the amount included as taxable income. You had at least $12,345 of basis in the example above because that's the amount reported on Form W-2.

Calculate your gain or loss on the investment by subtracting the basis from the sale proceeds when the shares are sold. Report the sale by filing Schedule D and Form 8949.

Key Takeaways

  • 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.
  • RSUs are considered income, so your employer must withhold taxes. If your employer withholds too much or too little, consider submitting a new Form W-4 to adjust.
  • RSUs appear in Box 14 of your W-2. They are already included in your total wages, which appear in Box 1.