If you work for a large public company or a brand-new startup, you may find yourself receiving at least some of your compensation in the form of stock and/or options grants. These benefits are meant to reward key employees, promote employee retention, and let employees share in a company’s success.
The most common form of stock compensation are restricted stock units (RSUs). When RSUs are granted they are unvested, meaning the employee cannot sell the shares, and no tax is owed at the time of the grant. RSUs generally vest over a period of years, at which point they can be sold or retained. Each vesting event triggers taxable income on the value of the shares on the day they vest. When shares vest, you may elect to sell to cover, meaning to sell some of the shares to cover the income tax owed on vesting. Your benefits manager or your JNBA Advisory Team can help you determine how many shares to sell to cover expected taxes.
Another common type of equity compensation is a stock option grant. An option is a right to buy a certain amount of your company’s stock on a future date at a pre-determined price, sometimes called the strike price. Like restricted stock, options usually vest over time. If you leave employment before your options vest, you will lose them. If the company’s stock price is higher than the strike price when the option vests, the option is said to be in the money. You do not have to exercise a stock option when it vests, but employer stock options eventually expire, so you will want to make sure you exercise them before expiration if they are in the money. The tax treatment of options is complicated and varies depending on the type of option your employer grants you, so be sure to work with your JNBA Advisory Team along with your tax advisor when planning to exercise your options.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
Please see important disclosure information at www.jnba.com/disclosure