Restricted stock units, RSU
Restricted stock units, incentive program, options for management or salary in shares. If you have an incentive program as bonus og add-on to your salary that includes stock options, shares or warrants you may have an opportunity to achieve a good bonus og capital gain, if the company you work for is performing and you also fulfill certain goals. We refer to these instruments under the common concept of RSUs (restricted stock units).
In many companies this is a normal way of motivating important employees and to connect their personal financial position to the employer. In most companies using RSUs they are only for the management and for the top of the organization. In other companies the RSU program is more integrated in the companies salary policy and includes the majority of the people working there.
RSUs are often profitable for the employee. But RSUs are also a complex way of receiving salary or bonus, and the tax implications are often indeed complex too.
If you receive stocks they may be taxed as salary income on the value received. Is it instead options or warrants the taxation is when the options or warrants are vesting and you execute. This is also salary income. If you have a gain, it is stock income at a lower tax rate. However, profit on stocks, options and warrants when sold is calculated from you average purchase price.
In some situations you may receive stocks taxed as personal income, but if they decrease in value your loss is calculated at a lower tax rate. This is one of the reasons why the providing company often offers to do a sale-to-cover – as in cover the taxes immediately after you received the stocks or the options or warrants vest.
If some of your RSUs are under the 7P-model, you will only be taxed when you sell them – and the entire outcome is stock income.
All these information need to be withdrawn from the company RSU program, the reporting already made must be extracted from your files at skat.dk, and in the end we must come out with the correct taxation.
In some organizations it is up to the individual employee to report the taxable income from RSUs. Most companies with RSU however offers to report all or some of the taxable income with names as fee, vesting, exercise, sale-to-cover, granting and cash out. In many cases this reporting from the issuing companies is not sufficient. Not at all. Sorry.
We very often see companies of any size not reporting correctly or sufficient or with the correct tax values to the tax authorities. Often the data is available – but it has somehow not been reported. And the resposibility – is on the tax payer/the employee.
In our opinion everybody receiving RSUs at any substantial value should request proper counselling.
It is not simple. It often requires several hours of work to calculate, verify and report RSU for an individual tax payer – depending on the structure, complexity of the RSU program and for how long it has been running to verify and report. It is very often not a walk in the park. When we re-visit the same tax payer next year it is off course much more easy and swift for us to assist.
Please feel free to contact us for help with your RSUs.