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Last year I have been granted some Restricted Stock Units (RSUs) by my employer that vest over three years. The first batch is about to vest and I soon have to choose a tax-withholding method, between these two:

  • Withhold enough shares/units to pay the tax withholding due at vesting or distribution
  • Deposit cash into your Stock Plan Account to pay the estimated tax obligation

I am not sure of the financial implications of either choice. Could anyone shed some light on the matter, please?

Possibly important side notes:

  • I currently live in the UK
  • The employer is headquartered in the US

Finally, I understand the rational way to deal with this kind of "bonus" is to sell and invest in a more diversified way (as pointed out by this StackExchange answer). Would choosing whether to sell or hold affect the choice of the tax-withholding method above? If so, in which way?

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The reason for this is that when the RSUs vest, they become income to you, and your employer is obliged to operate PAYE on that income, withholding some of it to pay tax to HMRC. The income is calculated based on the value of the shares at the time they vest.

The two options are essentially that they immediately sell some of the shares to generate enough cash to pay the tax, or that you provide the cash they need to pay HMRC and get to keep all the shares.

If you are planning on selling the rest of the shares immediately anyway, you might as well choose the first option. It'll save you having to temporarily find some extra cash, and it'll be less work administratively. The second option is really only useful if you want to hold on to the shares for the longer term.

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