[cloudjacker]

You know the simple solution to this is that companies withhold the amount of RSUs from you that would be taxed, when they vest.

Its almost like so simple of a solution that reporters won't touch it.

edit: nevermind. even the company cant pay the tax with their illiquid RSUs so its still a problem, and a bigger problem if the share valuation increases, pre-IPO

[linkregister]

The company I work for does this. The non-fanfare way it was described to me implies this is not rare across the industry.

Edit: I think the parent poster was talking about RSUs (pre-IPO) that cannot be sold to pay off the required tax. My friends at companies in this pre-IPO stage hold the RSUs in the employees' names until the IPO permits the employees to sell RSUs to pay the tax. The companies also let employees recieve the RSUs and pay the tax themselves if they want to, but nobody I know has done this.

[superuser2]

My RSUs don't vest until the AND of the vesting schedule and a liquidity event.

I may own illiquid RSUs, but only during the employee lockup period.

[timcederman]

In this case they are still withholding, but the withholding doesn't cover enough because of AMT and other reasons.

[cloudjacker]

yes the illiquid RSU dilemma: if the valuation of the RSUs have gone up by the time they vest, then you owe a boat load of tax but can't liquidate the RSUs to pay said tax.

[usaar333]

When has this failed? FB for instance withheld at nearly 45% (http://dealbook.nytimes.com/2012/09/10/why-facebook-is-payin... is this not enough or are some companies underwithholding?

[bogomipz]

I am curious what is the purpose of this withholding strategy then? I am not familiar with this. Doesn't sound great to me, at least with a quarterly vesting schedule you can generally go and sell them on the secondary market.

[timcederman]

Because it's impossible to know each employee's tax situation, and better to withhold too little than too much. In most cases it works out, but early employees and executives can easily be affected.

[akkartik]

Grandparent was talking about AMT, which is still a valid concern even with RSU withholding.

[usaar333]

How? RSUs are taxed at ordinary tax rates when they settle, which is higher than AMT.

Do you have an example where someone's AMT would be higher with RSUs than ordinary taxes?

[akkartik]

My admittedly neophyte understanding is that a) RSUs are counted as income, b) if income exceeds some threshold the entirety of it is subject to a higher AMT rate.

Without AMT, if you got stock and paid taxes in stock, you wouldn't care about the effect on taxes if the stock price later tanked. With AMT, however, you get screwed.

[usaar333]

AMT (28%) is lower than ordinary marginal rates (35%+).

What you may be thinking about is how some classes of income, like ISOs are treated differently under AMT than under the ordinary code: http://www.taxprophet.com/archives/Stock_Options_0306/ISO%20... http://www.taxprophet.com/archives/Stock_Options_0306/ISO%20... e.g. ISO exercise is not taxed under ordinary income, but is under AMT. Meaning your taxable income could be way higher under AMT, meaning even with the lower AMT rate, you still ended up owing more under AMT than regular.

However, I am unaware of a similar problem existing for RSUs. AFAIK, they are treated the same for AMT and the ordinary system meaning they shouldn't ever "push you into AMT"

[akkartik]

Here's an article at random discussing the impact of RSUs on AMT: http://www.mossadams.com/articles/2014/july/tax-planning-for.... It seems unlikely there's no impact.

[usaar333]

If anything, it argues you are less likely to be in AMT with RSUs:

"In years when large blocks of RSUs vest, your ordinary income tax will usually exceed your AMT due to the additional ordinary income. As long as that’s the case—you’re not in AMT—you can use state income tax and property tax deductions to reduce your ordinary income tax liability. If you’re likely to be in AMT next year (say, because you’ll have fewer RSUs vesting), ...."