If a restricted stock unit (RSU) has vested, but the employee wants to defer the “issuance” or “release” of the shares, my two questions are:
I strongly suggest that you speak with your companies tax advisor and the Benefit Manager/Attorney who helped set up your RSUs, to make sure all your ducks are in a row.
According to RMS, a global network of independent audit, tax and consulting firms:
“RSUs are not taxable at grant. Therefore, they allow a recipient to defer compensation into a later year because the recipient does not pick up the value of RSUs as compensation until vesting, which is typically in a year subsequent to the year of the grant. However, RSUs are generally designed to meet the short-term deferral exemption under section 409A. This means payment occurs within the same year of vesting or within two and a half months of the end of the year in which vesting occurred. In such cases, the RSUs are not considered nonqualified deferred compensation.”
Additionally, Foley & Lardner LLP, an international law firm, states:
“Any deferral of RSUs must comply with Section 409A of the Code, which governs all nonqualified deferred compensation, including deferred RSUs. RSUs that do not comply with Section 409A can be subject to significant adverse tax consequences to the award recipient, including immediate taxation upon vesting, a 20% additional income tax, and an interest penalty.”
According to Karl H. Graf, CPA/PFS, CFP®, Principal & Wealth Manager of Modera Wealth in his paper “The ABCs of RSUs (Restricted Stock Units)”:
“Stock dilution is defined as the reduction of equity ownership by all shareholders as a result of the issuance of new shares. Unlike other types of equity compensation, the issuance of RSUs do not immediately add to the company’s share count, which is favorable to your company. RSUs allow your employer to defer issuing shares until a later date, which therefore helps to delay stock dilution to existing shareholders.”
