Facebook Restricted Stock Units (RSUs): facts | Facebook RSU Vesting Schedule | Progress Wealth Management

Key Points

  • Facebook Restricted Stock Units (RSUs) are an important part of many Facebook employees’ compensation packages.
  • RSUs are a form of equity compensation that grants employees shares of the company’s stock.
  • RSUs typically vest over a specific period of time, and employees only receive the shares once they vest.
  • Facebook RSUs are subject to specific vesting schedules and tax implications.
  • Managing RSUs is an important part of overall financial planning, especially for Facebook employees.

Introduction

Facebook Restricted Stock Units (RSUs) are a type of employee compensation that grants Facebook employees shares of the company’s stock. This means that if the company’s stock price goes up, the value of the shares also increases. However, if the stock price goes down, the value of the shares also decreases.

In this blog post, we’ll discuss the facts about RSUs, explain the Facebook RSU vesting schedule, and describe why they are such a good choice for tech employees. We’ll also explain how Progress Wealth Management could help you make sense of everything when it comes to managing your RSUs. Read on to learn more!

What are Facebook Restricted Stock Units (RSUs)?

Facebook Restricted Stock Units (RSUs) are grants of Facebook stock that vest over time. The number of RSUs you receive is based on your position at Facebook, your level of experience, whether you’re in a high-demand role (like if you’re on a team of software engineers), and other factors. The vesting schedule for RSUs is typically four years, with a one-year cliff. This means that you will vest 1/4th of your Facebook shares after one year, 1/2 the next year, 3/4 after three years, and the full amount after four years.

The purpose of restricted stock units is to align the interests of employees with those of shareholders. By tying compensation to the performance of Facebook stock, RSUs give employees an incentive to help make Facebook a successful company and, by forcing employees to stay at least until their shares vest, it helps to retain their most valuable meta employee experts.

If you receive RSUs as part of your compensation package or as part of your stock awards, you will be taxed on them when they vest. The amount of tax you owe will depend on the value of the stock at vesting. You may also be subject to payroll tax treatment on the RSUs when they vest as well, which means you may owe both FICA/FUTA/ Social Security /Medicare (7.5%) + income taxes (both state and federal are possible) + capital gains taxes (if you decide you’d like to hold the stock for years following).

What are RSUs?

An RSU is a grant of Facebook stock that will vest in the future. The number of RSUs that vest each year is based on a vesting schedule. The vesting schedule is designed so that you will vest a certain percentage of your RSUs each year over a four-year period.

The first year you will vest 25% of your RSUs, and then you will vest an additional 25% of your RSUs each year for the next three years. For example, if you are granted 1,000 RSUs, you will vested 250 RSUs after one year, and then 625 RSUs after two years (250+375), 875 RSUs after three years (250+375+250), and 1,000 RSUs after four years.

RSUs are subject to forfeiture if you leave Facebook before they vest. For example, if you leave Facebook after two years, you will forfeit 375 RSUs that would have vested in the third and fourth years.

How Do RSUs Work For Facebook Employees?

First of all, it’s important to understand that RSUs are not the same as stock options. Stock options give employees the right to purchase a certain number of shares of company stock at a fixed price, known as the exercise price, at some point in the future. RSUs, on the other hand, do not give employees the right to purchase shares. Instead, they represent the right to receive a certain number of shares of company stock in the future, subject to certain vesting and release conditions. Essentially, receiving RSUs is the same thing as receiving stock grants or a cash bonus except you can’t take with you if you leave the company prior to it vesting.

When Facebook gives its employees shares of its company shares, no shares will be included in your total compensation until they complete their vesting period.

At Facebook, RSUs are granted to employees as part of their compensation package. The number of RSUs an employee receives will depend on their job level and performance. Facebook may also grant RSUs to employees as a bonus or as a way to retain top talent (very common among tech giants).

It’s worth noting that the value of RSUs can fluctuate based on the performance of the company’s stock. If the stock price goes up after the RSUs are granted, the employee may end up receiving more shares or cash than they would have if the stock price had stayed the same. However, if the stock price goes down, the employee may end up receiving fewer shares or less cash than they would have if the stock price had stayed the same.

Overall, RSUs can be a valuable form of compensation for employees at Facebook. They provide a way for employees to share in the company’s success and potentially earn a return on their investment. However, it’s important for employees to understand how RSUs work and to consider the potential risks and tax implications before making any decisions about how to handle their RSUs.

What is the Facebook RSU Vesting Schedule?

When an employee is granted RSUs, they are typically subject to a vesting schedule. This means that the employee must remain with the company for a certain period of time before they are entitled to receive the shares underlying the RSUs. For example, an employee at Facebook may be granted 100 RSUs. That grant vests over a period of four years, with 25% vesting after the first year and the remaining 75% vesting in equal increments over the next three years.

Once the RSUs vest, the employee becomes entitled to receive the underlying shares of company stock. However, the employee may not necessarily receive the shares immediately. In some cases, Facebook may choose to “pay out” the RSUs in cash rather than issuing actual shares. In other cases, the employee may need to pay taxes on the value of the RSUs when they vest because the value of your shares is now considered taxable income in the tax year that your shares vest.

If the employee does receive the underlying shares, they may have the option to sell them immediately or hold onto them as an investment. If the employee chooses to sell the shares, they will need to pay taxes on any capital gains they realize from the sale.

How Are RSUs Taxed?

When it comes to taxes, restricted stock units (RSUs) are taxed differently than regular stocks. The biggest difference is that with RSUs, you don’t have to pay taxes on the shares until they vest, or become available to you. This is different from regular stocks, which are taxed when you buy them. When RSUs vest, the fair market value of the stock (aka, the value of all your shares) is taxed at ordinary income tax rates. Typically, you’ll owe this tax come April. You can choose to sell all your shares and pay the tax bill with them or you can save up and pay it out of pocket.

The other key difference is that with RSUs, you’ll pay taxes at your ordinary income tax rate on the value of the shares when they vest. With regular stocks, you may be eligible for lower capital gains rates if you hold the shares for more than a year before selling them.

How do you calculate your Ordinary Income Tax bill resulting from RSUs vesting?

When RSUs vest and you receive the underlying shares of company stock, your tax liability will be based on the value of the RSUs at vesting. The amount of tax you owe will depend on the value of the RSUs at vesting and your tax bracket.

To calculate your ordinary income tax bill resulting from RSUs vesting, you will need to follow these steps:

  1. Determine the value of the RSUs at vesting. This is typically the fair market value of the company’s stock on the vesting date.
  2. Calculate the total value of the RSUs that vested. If you received 100 RSU shares that vested on the same date, and the value of each RSU was $50, then the total value of the RSUs that vested would be 100 x $50 = $5,000.
  3. Calculate the amount of tax you owe using your tax bracket. You can find your tax bracket by looking at the tax rate schedules provided by the IRS. For example, if you are in the 22% tax bracket and your RSUs had a value of $5,000 at vesting, you would owe 22% x $5,000 = $1,100 in ordinary income tax.

It’s important to note that you may also need to pay state and local taxes on the value of your RSUs, in addition to federal income tax. You should consult with a tax professional or refer to the tax laws in your state to determine the amount of state and local taxes you may owe.

In addition to ordinary income tax, you may also need to pay short-term capital gains tax or long-term capital gains tax when you sell the shares of company stock you received from the vested RSUs. The amount of capital gains tax you owe will depend on how long you held the shares and the difference between the sale price and your cost basis (which is typically the value of the RSUs at vesting).

What Happens to Your RSUs When You Leave Facebook?

If you leave Facebook, the outcome for your RSUs will depend on the terms of your RSU agreement and the circumstances of your departure. Here are a few possible scenarios:

  1. If you leave Facebook before your RSUs have vested: If you leave the company before your RSUs have vested, you will generally not be entitled to receive the underlying shares of company stock. However, the specific terms of your RSU agreement will dictate the exact outcome.
  2. If you leave Facebook after your RSUs have vested: If you leave the company after your RSUs have vested, you will generally be entitled to receive the underlying shares of company stock. However, you may need to pay taxes on the value of the RSUs when they vest, and you may need to sell the shares in order to pay the taxes.
  3. If you are terminated from Facebook: If you are terminated from the company, the outcome for your RSUs will depend on the terms of your RSU agreement and the circumstances of your termination. In some cases, you may be entitled to receive the underlying shares of company stock even if your RSUs have not yet vested. However, this will depend on the specific terms of your RSU agreement.

It’s important to note that the outcome for your RSUs can vary depending on the specific terms of your RSU agreement and the circumstances of your departure from the company. If you have questions about your RSUs and how they will be affected by your departure from Facebook, you should consult with a financial advisor or review the terms of your RSU agreement.

When To Seek a Financial Advisor?

It can be helpful to seek the advice of a financial advisor when you have questions or concerns about your RSUs or other financial matters. Here are a few situations when it may be particularly beneficial to consult with a financial advisor about your RSUs:

  1. When you are considering selling your RSUs: A financial advisor can give you investment advice on whether it is a good time to sell your RSUs and provide guidance on how to best manage the proceeds from the sale.
  2. When you are planning for retirement: If you have a significant amount of RSUs, a financial advisor can help you understand how they fit into your overall retirement plan and suggest strategies for maximizing their value.
  3. When you are faced with a major financial decision: If you are considering making a major purchase, such as a home or a car, or if you are faced with a major financial event, like a divorce, a financial advisor can help you understand the potential impact on your financial situation and provide guidance on the best course of action.
  4. When you are unsure of how to manage your RSUs: If you are unfamiliar with how RSUs work or you are uncertain about the best way to manage them, a financial advisor can provide guidance and help you develop a plan for maximizing their value.

Overall, it’s a good idea to consult with a financial advisor if you have any questions or concerns about your RSUs or your financial situation. A financial advisor can provide valuable advice and help you make informed decisions about your money.

So, what’s better: RSUs, NSOs, or ISOs?

RSUs, NSOs, and ISOs are all VERY different types of equity compensation that companies may offer to their employees. Each type of equity compensation has its own unique features and tax implications, so it’s important to understand the differences between them in order to determine which is the best option for you.

Here’s a brief overview of each type of equity compensation:

  1. Restricted stock units (RSUs): RSUs are a type of equity compensation that represents the right to receive a certain number of shares of company stock in the future, subject to certain vesting and release conditions. RSUs do not give employees the right to purchase shares.
  2. Non-qualified stock options (NSOs): NSOs are a type of equity compensation that gives employees the right to purchase a certain number of shares of company stock at a fixed price, known as the exercise price, at some point in the future. NSOs are not eligible for certain tax benefits that are available for other types of equity compensation, such as ISOs.
  3. Incentive stock options (ISOs): ISOs are a type of equity compensation that gives employees the right to purchase a certain number of shares of company stock at a fixed price, known as the exercise price, at some point in the future. ISOs are eligible for certain tax benefits that are not available for NSOs.

It’s important to note that each type of equity compensation has its own pros and cons, and the best option for you will depend on your individual circumstances and financial goals. You should carefully consider the tax implications and other factors before deciding which type of equity compensation is the best choice for you. You may want to consult with a financial advisor or a tax professional for more guidance on this decision.

Conclusion

From the facts above, it is plain to see that Facebook RSUs are an excellent way for individuals to benefit from their commitment and hard work with the company. Not only do they help protect against potential losses in stock prices but they also offer a predetermined vesting schedule which helps to ensure that employees can reap the rewards of their efforts over time. With this information, you should now be more informed on how Facebook RSUs can help achieve financial success. Hopefully, armed with this knowledge, you will be able to make a smart decision when considering whether or not investing in Facebook RSUs is right for you.

Stop wasting money on taxes by making mistakes with your equity compensation with Progress Wealth Management’s Help

Progress Wealth Management

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