How are RSUs taxed for private company?

When you receive stock in a private company, whether by option exercise or RSU vesting, the IRS and the SEC don’t care that you can’t sell the shares to pay the taxes owed. Plus, while no withholding applies with ISOs, even when you can sell some of the shares, that doesn’t mean you may not owe taxes!

Are restricted stock units taxable at vesting or distribution?

With RSUs, you are taxed when the shares are delivered, which is almost always at vesting. Your taxable income is the market value of the shares at vesting. You have compensation income subject to federal and employment tax (Social Security and Medicare) and any state and local tax.

Can a private company offer RSUs?

A handful of private firms can offer single-trigger RSUs without this liability because they can afford to cover the cost of tax withholding for their employees—but most companies simply don’t have the cash on hand.

How much will my RSU be taxed?

RSU Tax Rates At any rate, RSUs are seen as supplemental income. Most companies will withhold federal income taxes at a flat rate of 22\%. The value of over $1 million will be taxed at 37\%.

What does it mean for employees when a company goes private?

Going private means that a company does not have to comply with costly and time-consuming regulatory requirements, such as the Sarbanes-Oxley Act of 2002. In a “take-private” transaction, a private-equity group purchases or acquires the stock of a publicly traded corporation.

Do employees of private companies pay income tax on vested RSUs?

However, employees of private companies are not able to sell any of their shares to pay income tax. Since private companies have not yet had an IPO, their stock is still illiquid. This situation could put employees in an incredible bind and force them to come up with personal cash to pay income tax on stock received from vested RSUs.

Why can’t I sell my vested RSUs?

When they vest, you have to pay taxes on them. If your RSUs vest when your company is still private, you’ll owe taxes but not be able to sell the shares for the money you’ll need to pay the taxes. Why can’t you sell the shares? Because your company is private! (This is starting to feel circular.)

Are RSU’s taxable?

RSU’s are taxable income to the employee when the employee has unrestricted right to own the stock. That is typically upon vesting. The fact that there may not be a market for the shares may impact the fair market value, but it does not change the fact that the receipt of the shares is taxable income.

Are RSUs at private companies worth the risk?

But RSUs at private companies pose a problem that doesn’t exist at public companies. The main culprit: taxes. An employee is taxed on the market value of vested RSU shares when the shares are delivered; those RSU shares are taxed as ordinary income and reported in the employee’s pay stub and on Form W-2.