Any compensation given to employees is treated as wages; therefore, FICA (Social Security and Medicare), FUTA (Federal Unemployment), and SUTA (State Unemployment) will be paid, unless the stock is received in the form of Incentive Stock Options. There is one nuance between cash and stock wages, which is the timing. Cash is straightforward when it is received it is taxed. There are four main types of equity securities an employee could receive from an employer and each is unique when it comes to paying taxes. Below are the dates each class of stock compensation will be taxed.
- Restricted Stock Awards (RSAs): The stock is taxed on the vesting date unless the stockholder elects a Section 83(b) election within 30 days of the grant date.
- Restricted Stock Units (RSUs): Taxes are paid on the compensation on the vesting date even if the payment has not been received.
- Incentive Stock Options (ISOs): Not taxed as compensation to the employer or employee if the stock satisfies Section 421, 422, and 424.
- Non-Qualified Stock Options (NQSOs): Generally NQSOs will be taxed on the exercise date because there may not be a readily available FMV on the grant date, but the taxable date could be extended if there is a substantial risk of forfeiture if there is a vesting schedule.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
