what is a restricted stock unit rsu 
a restricted stock unit rsu is an award of stock shares usually given as a form of employee compensation the recipient must meet certain conditions before the restricted stock units are transferred to the owner restricted stock units are issued to employees through a vesting plan and distribution schedule after they achieve required performance milestones or upon remaining with their employer for a particular length of time restricted stock units give employees interest in their employer s equity but have no tangible value until they are vested the rsus are assigned a fair market value fmv when they vest restricted stock units are considered income once vested and a portion of the shares is withheld to pay income taxes the employee then receives the remaining shares and has the right to sell them michela buttignol investopediaunderstanding restricted stock units rsus restricted stock gained popularity as a form of employee compensation as an alternative to stock options after the accounting scandals of the mid 2000s involving companies like enron and worldcom at the end of 2004 the financial accounting standards board fasb issued a statement requiring companies to book an accounting expense for stock options issued this action leveled the playing field among equity types 1given those scandals companies began to consider other types of stock awards for attracting and retaining talent rsus which had usually been reserved for higher levels of management became more common the median number of stock options granted individually by fortune 1000 companies dropped by 40 between 2003 and 2005 the median number of rsu awards rose by nearly 41 in the same period 2in certain instances vesting may be permitted to continue if an employee becomes disabled or retired special considerationsrsus are treated differently for tax purposes than other forms of stock options that is the entire value of an employee s vested stock is counted as ordinary income in the year of vesting 3in order to declare the amount an employee must subtract the original purchase of the stock or its exercise price from the fmv on the date it becomes fully vested this difference is then declared as ordinary income by the taxpayer if the stock is sold at a later date and not on the exercise date the difference between the sale price and fmv is declared as either a capital gain or loss on the date of vesting 45advantages and disadvantages of rsusrsus provide an incentive for employees to stay with a company for the long term and help it perform well so that their shares increase in value if an employee decides to hold their shares until they receive the full vested allocation and the company s stock rises the employee receives the capital gain minus the value of the shares withheld for income taxes and the amount due in capital gains taxes administration costs are minimal for employers as there aren t actual shares to track and record rsus also allow a company to defer issuing shares until the vesting schedule is complete which helps delay the dilution of its shares rsus don t provide dividends before they vest 6 but an employer may pay dividend equivalents that can be moved into an escrow account to help offset withholding taxes or be reinvested through the purchase of additional shares the taxation of restricted stocks is governed by section 1244 of the internal revenue code irc 7restricted stock is included in gross income for tax purposes and is recognized on the date when the stocks become transferrable this is also known as the vesting date rsus aren t eligible for the irc 83 b election which allows an employee to pay tax before vesting as the internal revenue service irs doesn t consider them to be tangible property rsus don t have voting rights until actual shares get issued to an employee at vesting 6 if an employee leaves before the conclusion of their vesting schedule they forfeit the remaining shares to the company for instance if an employee s vesting schedule consists of 5 000 rsus over two years and he resigns after 12 months he forfeits 2 500 rsus incentivize employees to stay with the companyemployees receive capital gain minus value of shares withheld for income taxesminimal administrative costs