I am Bruce barber commander in chief and
co-founder of my stock options calm and
my stock plan calm but popular source of
knowledge content and tools and all
types of stock compensation that if
you're interested in watching part two
of this video series as I said in part
one it's great that you've received a
grant in restricted stock I want to help
you make the most of it from our
experience you likely have four
questions when you have these grants and
a part one I covered what is restricted
stock and what is it worth to me in part
two I'm going to be talking about what
are the taxes and what are the key
decisions you need to make and whenever
I use the word restricted stock remember
I'm also referring to restricted stock
units and performance shares so let's
turn to the question what are the taxes
and this is a more complicated topic
when the restrictions laughs investing
you're going to owe taxes on the value
at that time and not usually a grant the
taxes include federal income tax state
income tax Social Security up to the
yearly maximum and Medicare and you're
not going to have any state income tax
if you live in a state that doesn't have
any state income tax so that's that will
be good for you now the holding of these
taxes investing is based on the rules
for supplemental income which we should
to stock is a type of supplemental
income so there's going to be federal
withholding and state withholding based
on whatever the rules are in your state
if you have that state tax the
supplemental income so for example the
federal level there's a flat rate of 25
percent that applies to supplemental
income up to a million dollars if you
have over a million dollars in
supplemental income that withholding
rate is thirty nine point six percent
now it's important to know that the
amount that your company is going to
withhold add vesting is not going to
neatly match the Amahle you actually owe
with your tax return that's not known
until you actually file your return so
the amount is much less than the amount
you project you're going to want your
marginal tax rate you want to consider
putting aside extra money for the taxes
and if it's a lot less you want to pay
estimated taxes so please speak to your
tax advisor about this now you wonder
well how does the IRS actually get its
money and vesting well your company is
going to come up with a withholding
method and their various kinds of
withholding methods the most popular one
is what's called share surrender and
that's where the company actually holds
back a number of shares
using a share withholding method and
what comes in your account is just the
net number of shares after those shares
are held back to cover the amount in
taxes other withholding methods include
actually selling shares investing are
you paying a check to your company but
you want to look in your stock plan to
see how that works now when you sell the
stock you're going to have capital gain
or capital loss based on the difference
between the stock price on your sale
date and the value of the stock on the
vesting date and when you sell the stock
you're going to get from your brokerage
firm what's called a 1099 B and you're
going to use that to report the sale on
your tax return make sure you always
report the sale on your tax return even
if you sold the stock right away at
vesting ok so last question what are
some of the things you're going to have
to make decisions about well you're
going to have to decide about
withholding if your company doesn't have
a mandatory one you're going to have to
decide whether you're going to accept
the grant or not if your company has an
acceptance procedure and then most
importantly you're going to have to
decide whether they'll hold the share to
sell them at vesting that's a personal
financial decision it depends on many
factors including your cash flow your
portfolio diversification you look for
the company's stock price and then if
you have restricted stock and not
restrict the stock units you may also
have a choice of making what's called an
83-b election to pay taxes on the value
of stock at Grant and not investing that
has some advantages and disadvantages so
to learn more about restricted stock
including Financial Planning issues and
tax return reporting please see those
sections online stock options com if
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my stock down thank you