You’ve finally reached your RSU vesting date, now what? In this post we will review the three “Release Methods” with which you can have your RSU’s be processed as. Each option can change how you receive the RSUs and how much tax will be withheld from the award. It will have no bearing though on the total amount which you will receive pre-tax. As we reviewed in Part 1 of the series, the total amount is simply just the current AMZN share price x the total number of RSUs you have vesting.
The three options are:
- Pay for taxes and fees separately, receive all shares
- Sell to cover taxes, receive remaining shares
- Sell all shares, cover taxes, receive the remaining cash
We’ll review each in more detail below. You can also find out more from Morgan Stanley here.
By default, one of these will be selected for you through your custodian (Morgan Stanley or other financial institution). Typically, option 2 (Sell to cover, receive remaining shares) is the default.
Pay for taxes and fees separately, receive all shares
In this option, your custodian will do nothing and leave 100% of the shares as is, unsold. You will be responsible for paying the taxes and any associated fees separately on your own. The shares will remain yours in the form of AMZN stock with your custodian.
Example:
Note: I am using only estimates for taxes due. Please consult a tax professional to understand your specific scenario
- 5 Shares @ $2,000 = $10,000 Vest Amount
- Federal Tax $2,200
- Other Taxes $500
- Total Taxes Due $2,700
No shares sold: 5 shares @ $2,000/share remain with your custodian.
$0 to taxes have been paid but a $2,700 tax liability remains for you to pay separately.
$0 transferred to you
Sell to cover taxes, receive remaining shares
Your custodian will sell whole shares that equal your estimated tax liability. This is usually a flat % for federal income such as 22%. Since only whole shares can be sold any overage from the difference between the amount to cover taxes and the amount sold will be refunded to you in the form of cash. The remaining RSU’s will stay with the custodian in the form of company stock.
Example:
Note: I am using only estimates for taxes due. Please consult a tax professional to understand your specific scenario
- 5 Shares @ $2,000 = $10,000 Vest Amount
- Federal Tax $2,200
- Other Taxes $500
- Total Taxes Due $2,700
Shares sold to cover taxes – 2 shares @ $2,000 = $4,000.
$2,700 paid in taxes for you by the custodian
$1,300 transferred to your bank account in cash
3 Shares @ $2,000/share remain with your custodian.
Sell all shares, cover taxes, receive the remaining cash
Your custodian will sell all shares, pay your estimated taxes, and make a transfer to you for the remainder.
Example:
Note: I am using only estimates for taxes due. Please consult a tax professional to understand your specific scenario
- 5 Shares @ $2,000 = $10,000 Vest Amount
- Federal Tax $2,200
- Other Taxes $500
- Total Taxes Due $2,700
All shares sold at ~$2,000 (Price on vest day).
$2,700 paid in taxes for you by the custodian
$7,300 transferred to your bank account in cash
0 Shares remain with your custodian.
In part #3 we will dive deeper into the tax consequences of each of these scenarios and understand what the tax implications are if you don’t sell the shares immediately.