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When you receive an RSU, you don't have any immediate tax liability. You only have to pay taxes when your RSU vests and you receive an actual payout of stock shares. At that point, you have to report income based on the fair market value of the stock.
Restricted shares are unregistered, non-transferable shares issued to a company's employees. They give employees incentives to help companies attain success. They are most common in established companies that want to motivate people with an equity stake. Their sale is usually restricted by a vesting schedule.
The value recognized for each restricted share is the same as its current share price (for non-dividend paying stock). Restricted stock is recognized on the income statement over the service period.
Taxation of RSUs The amount reported will equal the fair market value of the stock on the date of vesting, which is also the date of delivery in this case. Therefore, the value of the stock is reported as ordinary income in the year the stock becomes vested.
Accounting for Restricted Stock/RSU Grants The accounting for restricted stock awards can be quite technical. For example, if actual shares are delivered to the employee, then journal entries would impact equity. If the value of the shares is paid in cash, then the company would most likely record a liability.
Broadly speaking, the value of an RSU is a product of the following inputs: The stock price at the Valuation Date; The expected volatility of the stock price through the vesting period; The taxes payable upon vesting; The likelihood of the RSUs vesting; and. The time value of money.
For example, a company may grant 300 RSUs that vest over three years, so each year the employee receives 100 shares of the stock. A year after the grant date, the employee would own 100 shares of the stock, with 200 shares remaining unvested.
RSAs and RSUs are both restricted stocks but they have many differences. An RSA is a grant which gives the employee the right to buy shares at fair market value, at no cost, or at a discount. An RSU is a grant valued in terms of company stock, but you do not actually get the shares until the restrictions lapse or vest.