RSU to partially vest at end of this year

AdrianG08

Was granted company stock (US company but working in Ireland) upon starting with them last year. First 25% of stock is due to vest end of this year, with remainder in 25% increments over the next 6 monthly periods.

Now the stock has gone up quite a bit ($25k now worth $40k), so i'm guessing a figure of around $10k will vest.

Can someone tell me how this works? At what stage is tax paid? Do I have to sell the shares to be eligible to pay tax or is tax payable every year?

On what precise figure is the tax paid? Would it be the entire $10k, or simply the increase ($10k minus $6.25k= $3.75k)?

Last question, I know some people make annual deductions from such grants that have vested, how does this work? Do they usually take the difference every year (i.e the increase on the principal?

Any advice would be greatly appreciated.

accensi0n

By default, you've probably got "sell to cover", so when it vests some of the shares will be automatically sold to cover the tax due, guessing the marginal rate of about 50%, so about half your shares will be gone.

When you sell the remaining vested shares you'll have to pay CGT on the gain(increase), less the initial 1270.

AdrianG08

https://www.boards.ie/discussion/comment/118080084#Comment_118080084

initial 1270?? where did you get this figure?

CGT tax is 33% no? So why is rate of 50% applied?

accensi0n

https://www.revenue.ie/en/additional-incomes/employment-related-shares/taxation-of-employment-related-shares/restricted-stock-units.aspx

https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/what-is-exempt-from-cgt.aspx#:~:text=Each%20tax%20year%2C%20the%20first,are%20resident%20or%20non%2Dresident.&text=This%20exemption%20is%20for%20individuals,by%20a%20company%20or%20trust.

AdrianG08

https://www.boards.ie/discussion/comment/118080266#Comment_118080266

I don't understand why 50% of shares would be gone.

Say my vested share is worth €10,000 as of today, surely I am only liable for 33% CGT no? minus the $1270?

And how do people draw from it every year, how does that work exactly?

generic_throwaway

https://www.boards.ie/discussion/comment/118080495#Comment_118080495

The RSUs are income. You pay PRSI, income tax and USC on it. You will lose up to 52% of the value, depending on your rate of USC. CGT comes into play if you hold the stock and it increases in value.

beachhead

https://www.boards.ie/discussion/comment/118080266#Comment_118080266

1,270 euro is the CGT allowance against gains made on shares.The first 1,270 euro is exempt from tax in any one tax year.I am not aware of a 50% tax rate on the balance of any gain.If you got the shares free-meaning you paid nothing towards the cost of obtaining them then you will pay tax etc on the full market value at the time of receiving them

AdrianG08

So whats the best thing to do with this stock? Its going to go up and up I think, got in at the bottom. $25k grant last year is worth $43k today. 25% of which will vest in December.

I'd like to see some long term benefit but would also like to make some money annually also. Although seeing as 50% will be wiped out at source, followed by 33% of any annual gain, leaves me with feck all really does it

accensi0n

https://www.boards.ie/discussion/comment/118080995#Comment_118080995

If it's going to go up and up, then leave it, don't sell it..

Unless you actually need the extra cash, no point selling it just for the sake of seeing an increase in your current account annually.

AdrianG08

https://www.boards.ie/discussion/comment/118081028#Comment_118081028

Yeah I know what you mean. Do I still pay 33% every year on the gains if I leave it? Or just a flat 33% on the gain when I attempt to sell?

On a sidenote, it would be nice to avail of the exempt figure every year (€1270) but don't know if its worth it.

Chips Lovell

I usually sell and reinvest on the day of vesting. I used to hold a lot of stock received through RSUs until I realised I was kind of leaving all my eggs in one basket, i.e. my salary and my savings were dependent on the continuing good fortune of my employer.

generic_throwaway

https://www.boards.ie/discussion/comment/118080995#Comment_118080995

Welcome to the frustrating world of Irish tech. I paid over 30k in tax one month last year as the company I was working for was acquired. I saw less than half of my share of the company. This is one big reason why Irish tech companies will end up setting up HQ in the USA, rather than being Irish success stories (Intercom, I'm looking at you).

AdrianG08

https://www.boards.ie/discussion/comment/118081167#Comment_118081167

I would do that, but the company stock is a sound investment in itself to be fair. Its really on the up, so 5-10 years would be a good holding I think. Its just a pain in the hole that 50% is wiped out on vesting (treated as income) and then 33% taken from any gain each year.

Not a huge earner either FWIW (below 50k), so this was a nice little pot, or so I thought.

accensi0n

Always deflating when the tax man kicks you in the nads unexpectedly. Just wait till you get hit with penalties for late payment of the CGT. 😂

If the price remains the same, you'd still have about $23k in 20 months time if you sold all then, even after paying the CGT on the current 15k gain.

Salary and additional company shares will probably go up over the next few years as well.

AdrianG08

https://www.boards.ie/discussion/comment/118084251#Comment_118084251

Is it best to put this in the hands of a tax advisor? When is CGT due? I am guessing it will be something I need to declare to revenue myself, there is no "deducted at source" option no?

Chips Lovell

Most people in your situation would take care of it themselves. Revenue website is very good on explaining when and how to file.

AmberKat

Agreed the tax treatment of RSUs in Ireland sucks but let's be clear you are still up at the end of the day.

You pay tax at your marginal rate when they vest, if you sell straight away i.e at the same price when they vest, no CGT is due.

If you keep them you pay CGT if the price you eventually sell them at, is higher then the vest price. Every year you have a CGT tax free allowance of €1,270.

Remember over 60% of the workforce of the country never see any kind of share award, so while as I said the treatment sucks there isn't much pressure/incentive on the Government to change it.

Also your programme seems extremely generous considering you got them on joining and they will have fully vested in 2.5 years. So maybe count yourself lucky.

AdrianG08

So you only pay CGT when you sell the shares is that correct?

I'm only liable for it when I sell, and if I don't touch them when they vest the tax will be calculated at this later date of sale?

Put it down in idiot terms, 25% of my stock will vest in December, (was worth $25k when I started last year, now is worth $52k).

Say $12.5k vests in December, and I leave it there sitting not wanting to touch it for 3 years (until 100% vests), do I only pay CGT only after 3 years? Or is it something I needs to do every year?

AdrianG08

I think I will do this myself, but when the shares vest in December will the tax automatically be deducted for me (I.e amount of shares will be sold to cover the tax)? Or do I have to do this manually?

Also, do I only have to pay CGT when I am selling my shares? I plan on holding onto them, but if some are sold to just cover the tax, does this constitute a sale for which CGT applies?

For the amount I was awarded a tax advisor would charge me too much for it to be worthwhile.

ravendude

As regards the question would you sell or hold, - RSUs vestments are a classic for what's known as "endowment bias" in behavioral finance.

Say, imagine your RSU award is worth 50K....

If by some good fortune 50K cash landed on your lap, ask your self, would you really go out and spend that money on 50K worth of stock in your employers business? I'd bet probably not... If not, why are you basically doing it now?

Also ask yourself if you have any plans for the money within the next 5 years? If so, having that money in a single stock is not a great idea.

Average stock volatility in 1 year is +/- 15%, with significant deviations. If a stock loses say 30% you then need to gain 43% to make that money back. Market risk can mean big losses even if the company is great, no matter how good the company is.

As another poster suggested above, - I generally sell any RSUs very quickly and reinvest.