In today’s competitive workforce, many employers seek innovative ways to compensate and retain top talent. Restricted stock units (RSUs) are one such method, offering employees a stake in the company’s success while reducing cash outlay. While RSUs are a valuable form of incentive compensation, they also present unique tax challenges. Following are several tips to help you navigate your RSUs.

What Are RSUs?

RSUs are a type of incentive compensation typically granted to executives as part of their pay package. They represent a promise by the employer to grant a set number of shares once a designated vesting period is complete.

Unlike traditional stock options — which allow employees to buy shares at a set price — RSUs are issued as company stock. Once vested, the employee owns the shares outright.

Benefits of RSUs

RSUs offer benefits for employers and employees. Companies use them to attract and retain talent and align employees’ interests with corporate goals. RSUs encourage employee commitment to long-term objectives.

For employees, RSUs provide a chance to benefit from company growth. If the stock’s value rises, so does the RSU value. RSUs are also less risky than stock options, as employees don’t have to invest their own money.

Tax challenges of RSUs

Despite their advantages, RSUs come with tax complications, including:

Vesting taxation — RSUs are taxed as income when they vest, even if you don’t sell the shares. The market value is considered income in the year it vests and may also be subject to Social Security and Medicare taxes, potentially leading to a large tax bill.

Withholding and selling RSUs — To pay taxes on vested shares, your company may withhold some shares (or you might sell some). Your decision can affect capital gains taxes based on how long you hold the shares.

Capital gains tax — If you hold the shares after vesting, any increase in value is taxed when sold. The rate (short-term or long-term capital gains) depends on the holding period.

Multijurisdictional complexity — Working for a multinational company or having cross-border employment can create tax complications due to differing rules among countries.

Managing RSU tax liabilities

Proactive tax planning strategies may include:

*Deferred vesting — If offered, deferring vesting lets you time the taxable event to a lower-tax year.*Vesting spacing — If multiple RSUs vest at different times, your team can manage the timing of these events to reduce tax exposure.

If you sell shares, consider investing the proceeds in:

*Tax-advantaged accounts — Use RSU sale proceeds to make IRA contributions, which can reduce current-year taxes and grow tax-deferred. Although you can’t invest the proceeds directly into an employer-sponsored account, such as a 401(K), they can be used to offset greater contributions from your paycheck into your retirement account.

*Low-cost index funds — Investing in index funds in a taxable account can offer diversification and provide greater tax efficiency than actively managed funds.

Selling some RSUs when they vest can help cover taxes, but remember to:

*Be strategic — Work with your wealth manager and tax advisor to sell only what’s necessary to cover taxes to maintain investment in the company while addressing your tax obligation.*Consider capital gains — If you hold shares, be mindful of the holding period. Long-term capital gains treatment can reduce your tax bill.

Charitable giving can reduce your taxable income and support causes you care about. Options include:

*Donating cash — Give RSU sale proceeds to a qualified charity.*Donating appreciated stock — If you hold long-term appreciated stock, donate it directly to a charity. You get a deduction for the fair market value, and the charity avoids capital gains tax.*Establishing a donor-advised fund — Contributing RSU sale proceeds to a donor-advised fund lets you take an immediate deduction and distribute funds to charities over time.RSUs can be a valuable component of an employee’s compensation, but they come with tax implications that require thoughtful planning. For complex situations, especially those involving multiple jurisdictions or significant holdings, working with qualified financial and tax professionals can help ensure your strategy supports your broader financial goals.

Hannah Rogge is a wealth manager at Creative Planning (formerly Monterey Private Wealth). She welcomes questions you may have concerning investments, taxes, retirement or estate planning. Send your questions to: Hannah Rogge, 2340 Garden Road, Suite 202, Monterey, CA, 93940. Or you can email hannah.rogge@creativeplanning.com. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.