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| FAQs – Restricted Stock Unit Plans |
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| A Restricted Stock Unit is a grant valued in terms of company stock, but company stock is not issued at the time of the grant. After the recipient of a unit satisfies the vesting requirement, the company distributes shares or the cash equivalent of the number of shares used to value the unit. Your plan rules may allow or require you to defer distribution to a later date. Vesting requirements may be met by the passage of time or by either company or individual performance. If the recipient does not meet the requirements the company set forth prior to the end of the vesting period, the units are typically forfeited to the company. Depending on plan rules, the participant or donor may be allowed to choose whether to settle in stock or cash. |
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| Like a Restricted Stock Award, a Restricted Stock Unit is a grant valued in terms of company stock. Unlike a Restricted Stock Award, no company stock is issued at the time of a Restricted Stock Unit grant, therefore no Special Tax 83(b) election can be made at vest. After a grant recipient satisfies the vesting requirement, the company distributes shares or the cash equivalent of the number of shares used to value the unit. If the plan rules allow it, the company may require or the recipient may choose to defer distribution to a later date. Vesting periods can be met by the passage of time, or by company or individual performance. If the recipient does not meet the conditions the company set forth prior to the end of the vesting period, the shares are typically forfeited. |
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| Restricted stock units and control and restricted stock are two entirely different concepts. Restricted stock units relate to equity compensation, and control and restricted stock to securities law. A restricted stock unit is a form of equity compensation subject to an agreement (the grant agreement) defining the recipient's rights under the issuer's equity compensation plan. Control and restricted stock involves unregistered shares of stock that are restricted by SEC Rule 144. |
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| Yes. Under normal federal income tax rules, an employee receiving Restricted Stock Units is not taxed at the time of the grant. Instead, the employee is taxed at vesting, when the restrictions lapse, unless the plan allows for the employee to defer receipt of the cash or shares. In these circumstances, the employee must pay statutory minimum taxes as determined by the employer at vesting, but can defer payment of all other taxes until the time of distribution, when the employee actually takes receipt of the shares or cash equivalent (depending on the company's plan rules). The amount of income subject to tax is the difference between the fair market value of the grant at the time of vesting, minus the amount paid for the grant, if any. |
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| For grants that pay in actual shares, the employee's holding period begins at the time of vesting, and the employee's tax basis is equal to the amount paid for the stock plus the amount included as ordinary compensation income. Upon a later sale of the shares, assuming the employee holds the shares as a capital asset, the employee would recognize capital gain income or loss; whether such capital gain would be short- or long-term depends on the time between the beginning of the holding period at vesting and the date of the subsequent sale. Consult your tax adviser regarding the income tax consequences to you. |
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| Under the netting of shares option, you are instructing your employer to withhold enough shares to pay the tax withholding due at distribution. You will be left with the number of shares for distribution less the number of shares withheld to cover your tax withholding obligation. If you have deferred distributions, you must address any tax obligations you may have at vesting directly with your employer. |
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| If you decide to pay cash to cover your distribution taxes, you will need to have enough cash in your Fidelity AccountSM on the day of distribution to cover your tax withholding obligation. Once the distribution occurs, Fidelity will debit the amount necessary to cover your tax withholding obligation from your account and forward it to your company for reporting and remitting it to the appropriate regulatory agencies. |
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| The following examples illustrate how each option works. |
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| Mike has 250 restricted stock units vesting on January 1, 2004 but distributing on January 1, 2005. Assume the stock price on January 1, 2005 is $10 per share and the tax withholding obligation at distribution is $725. |
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| On January 1, 2005, when the 250 units are distributed, Mike's company withholds 73 shares (73 shares x $10 per share = $730) to cover the $725 tax withholding obligation. The $5 overage is applied to Mike's federal income tax. Mike is left with 177 shares (250 vested shares - 73 shares withheld to cover the tax withholding obligation = 177 shares remaining). |
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| On January 1, 2005, when the 250 units are distributed, Mike must have $725 cash in his Fidelity AccountSM to cover his tax withholding obligation. The $725 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies. Mike is left with all 250 shares. |
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| You can make or change your tax withholding method election from either NetBenefits.com or Fidelity.com. Once you log in, go to the Portfolio page and click your Restricted Stock Unit plan name to display the Restricted Stock Unit Summary page, which lists all of your Restricted Stock Unit grants. Use the drop-down menu to the right of your Restricted Stock Unit grant to make or change your election. |
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| A default election, decided by your company, will be made for you if you have not made an election 15 days prior to vesting. You can change your tax withholding method election up to seven days prior to vesting. |
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| Once your restricted stock units vest, your rights become non-forfeitable. You will receive actual payment according to the
distribution schedule under your company's plan. If you have not elected to defer distribution, the distribution date and the
vesting date are the same. |
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| Once the holding period has been met, the shares or cash equivalent (depending on plan rules) of company stock continue to be held as units, and are not automatically deposited into your Fidelity AccountSM. Once the units have vested, you may be required to pay statutory minimum taxes, but since you've deferred receipt of payment to a later date, you can put off paying your remaining taxes. You will not own the units outright until they are distributed to your Fidelity AccountSM, based on your plan's distribution terms. |
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| The pre-determined period in which shares must be held before an employee can take ownership of Restricted Stock Units. |
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| A distribution schedule is the schedule for actual payment to you under your company's plan. |
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| You can use Fidelity's Restricted Stock Unit calculator to estimate your tax withholding obligation. To access the calculator, go to NetBenefits.com or Fidelity.com and view your Restricted Stock Unit plan. Click Estimate Gain to estimate your tax withholding obligation. Enter your grant data to estimate taxable income and tax withholding on vesting. |
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| If you leave your employer prior to the date your Restricted Stock Units vest, typically you forfeit your units. Check your company's plan for details. |
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| If you leave your employer prior to the date your Restricted Stock Units are fully distributed, typically you forfeit your units. Check your company's plan for details. |
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| If your restricted stock units are vested, payment will be made to you or your estate as set forth under plan rules. With respect to unvested restricted stock units, there are usually special rules in the event you retire, die or become disabled. See your employer's plan rules for details. |
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