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When am I liable for taxes? I know that I am not liable for taxes on the date of grant.

Scenario:

I have been granted an allotment of restricted stock with a 4 year vesting schedule by a publicly traded US corporation of which I am an employee.

  • 100 shares vesting at 25% per year (0% at issue, 100% vested 4 years after grant). Let's say this was received May 1, 2014.

Which of the below, if any, is correct?

  1. If the share price was $PRICE on May 1, 2015, am I expected to pay taxes on constructive receipt of 25 shares (the amount of shares vested at that time) @ $PRICE, or $25 * PRICE of income that will be taxed, per year until fully vested?

  2. Does the doctrine of constructive receipt only apply once the stock is 100% vested?

Edit; my understanding to this point is that (1.) is true but I want to make sure.

Edit2; this question is not fully answered in "Tax implications of restricted stock units" because it does not address at what point in the vesting schedule that recognition of income occurs.

The closest thing I found was "RSU are taxed when vested, based on their value at that point, as salary." as an answer in that question but that does not clearly state whether that is full tax on full vesting or partial tax on partial vestment.

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The answer is that the income is recognized as individual shares vest. So on May 1, 2015, you recognize income equal to to the market price of 25 shares.

Typically, the company issuing the RSU's will immediately sell enough shares to cover withholding of taxes on the vested shares. If your total withholding is 40%, then the company will immediately sell 10 of the shares that just vested to cover the taxes, and you'll have the other 15 shares deposited in your brokerage account.

The value of those 25 shares - plus any other that might vest during the year - will appear on your W2 statement at the end of the year, alongside your salary.

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