Fidelity.com Help - Fidelity.com Help (2024)

A restricted stock award (RSA) is a form of equity compensation used in stock compensation programs. An RSA is a grant of company stock in which the recipient's rights in the stock are restricted until the shares vest.

Restricted Stock Award Basics

• What is a restricted stock award?
• "How is a restricted stock award different from a restricted stock unit?
• How is a restricted stock award different from control and restricted stock?
• How do restricted stock award plans work?
• What happens to my restricted stock award if I retire, die, or become disabled?

Vesting

• When do RSAs vest?
• What happens to my restricted stock award once it vests?
• What happens to my restricted stock award if I leave my employer prior to my vesting date?

Summary and History Information

• What kind of summary information can I view for restricted stock awards?
• What kind of detail can I view on particular RSAs?
• How is the total value of unvested grants calculated?
• What is the fair market value for RSAs?
• What is the expiration date?
• How do I view my plan document and grant agreement?
• What kind of history information can I view for RSAs?
• What kind of information can I view for unvested grants?

Accepting and Declining Grants

• How do I accept or decline a grant?

Tax Implications

• What are the income tax implications of an RSA?
• When do I need to make my tax withholding election?
• How do I pay taxes on a restricted stock award?
• How is tax withholding calculated?
• How can I determine how much will be withheld for taxes upon vesting?

83(b) Tax Elections

• What is an 83(b) tax election?
• How long do I have to make an 83(b) election?
• What are the advantages of making an 83(b) tax election?
• What are the disadvantages of making an 83(b) tax election?
• What steps do I need to take to make a Special Tax 83(b) Election?

Related Help Topics

RESTRICTED STOCK AWARD BASICS

What is a restricted stock award?

A Restricted Stock Award is a grant of company stock in which the recipient's rights in the stock are restricted until the shares vest (or lapse in restrictions). The restricted period is called a vesting period. 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.

How is a restricted stock award different from a restricted stock unit?

Like a restricted stock award (RSA), a restricted stock unit (RSU) is a grant valued in terms of company stock. Unlike an RSA, no company stock is issued at the time of an RSU grant, and therefore no Special Tax 83(b) elections can be made at grant. At the time of distribution of an RSU, the issuer distributes a value based on the value of the stock, either in cash, in stock, or in a combination of cash and stock as set forth in the plan rules. 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.

How is a restricted stock award different from control and restricted stock?

Restricted stock awards and control and restricted stock are two entirely different concepts. Restricted stock awards relate to equity compensation, and control and restricted stock to securities law. A restricted stock award 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.

How do restricted stock award plans work?

Once you are granted a restricted stock award, you must decide whether to accept or decline the grant. If you accept the grant, you may be required to pay your employer a purchase price for the grant.

After accepting a grant and providing payment (if applicable), you must wait until the grant vests. When the grant vests, you receive the shares of company stock or the cash equivalent (depending on your company's plan rules) without restriction.

What happens to my restricted stock award if I retire, die, or become disabled?

There are usually special rules in the event you retire, die or become disabled. See your employer's plan rules for details.

VESTING

When do RSAs vest?

Vesting requirements may be met by the passage of time, or by company or individual performance. If you do not meet the requirements set forth by your company prior to the end of the vesting period, your shares are typically forfeited to the company. Vesting may occur prior to the vesting date shown, contingent upon your company's satisfaction with your compliance with the company's performance criteria set forth in your company's plan rules.

What happens to my restricted stock award once it vests?

Once the holding period has been met, the shares or cash equivalent (depending on your company's plan rules) of company stock are automatically deposited into your Fidelity Account. Once the shares have vested, you own them outright, and may hold, sell, or otherwise dispose of them without risk of forfeiture. If your grant is paid in cash, you may use the cash as you would any other cash in your account.

What happens to my restricted stock award if I leave my employer prior to my vesting date?

If you leave your employer prior to the date your restricted stock awards vest, typically you forfeit your grants. Check your company's plan for details.

SUMMARY AND HISTORY INFORMATION

What kind of summary information can I view for restricted stock awards?

The Summary page for restricted stock awards displays information about grant totals, unaccepted grants, and accepted grants. From this page, you can view detailed information about a particular RSA, accept or decline unaccepted RSAs, select an 83(b) Tax Election for an accepted RSA, or select a tax withholding method which will take effect at vesting for an accepted RSA.

What kind of detail can I view on particular RSAs?

You can view vesting schedule information, grant details, and the grant's current estimated value.

How is the total value of unvested grants calculated?

The total value of unvested grants is equal to the previous day's closing price of the stock times the number of unvested grants, but not including unaccepted grants. Note that this value is not the same as the fair market value of your unvested grants.

What is the fair market value for RSAs?

The fair market value is the value of the shares at the time they vest and the proceeds are delivered to you. Fair market value is specified in your RSA agreement, and is used to determine the amount of income treated as compensation for federal income tax purposes. Your company's RSA plan rules determine the how fair market value is calculated for your RSAs. The calculation may be based on prior business day's close, average high and low for the day, real-time price, or today's close. Fair market value per share is the fair market value divided by the number of RSA shares you own.

What is the expiration date?

The expiration date is the date on which your agreement expires. For restricted stock that vests based on time, the expiration date is immaterial. If vesting is based on factors other than the simple passage of time, such as performance measures, the expiration date is the end of the period within which vesting is possible. For these plans, if vesting has not occurred by the expiration date, the grant is forfeited. Please refer to your company's plan rules to understand whether any expiration dates will apply under your plan.

How do I view my plan document and grant agreement?

For accepted grants, select View Details. On the View Details page, click View Plan Document or View Grant Agreement. You can also view your plan document and grant agreement when you accept or decline an unaccepted grant.

The plan document and grant agreement are in PDF format. You must have the free Acrobat^® Reader^® to view and print the plan document.

What kind of history information can I view for RSAs?

You can view a history of all transactions for your restricted stock award plan for the past 10, 30, 60, 90, or 120 days. Transactions appear in reverse chronological order, but you can also sort the list of transactions by transaction type, grant ID, grant date, or quantity. You can view details pertaining to accepted and declined grants, including 83(b) tax election details, if applicable.

For transactions older than 120 days, view Statements/Records under Accounts & Trade > Portfolio on Fidelity.com

What kind of information can I view for unvested grants?

On the Unvested Grants page, you can view the vesting date, grant date, grant ID, number of shares, and tax withholding method for each unvested grant. You can also view a grant's estimated value upon vesting, and an estimate of the taxes you may owe upon vesting. You can elect a tax withholding method for each RSA still requiring a tax withholding election.

The View Details page for an unvested grant also shows you the estimated fair market value per share, total estimated taxable income, and tax withholding amounts and percentages broken out by Federal, State, and Medicare.

ACCEPTING AND DECLINING GRANTS

How do I accept or decline a grant?

See Accepting and Declining Grants for details.

TAX IMPLICATIONS

What are the income tax implications of an RSA?

Under normal federal income tax rules, you are not taxed at the time of a restricted stock award, assuming you have made no election under Section 83(b). Instead, you are taxed at vesting, when the restrictions lapse. 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.

For grants that pay in actual shares, your tax holding period begins at the time of vesting, and your 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 you hold the shares as a capital asset, you would recognize capital gain income (or loss); whether such capital gain would be a short- or long-term gain would depend 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.

When do I need to make my tax withholding election?

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.

How do I pay taxes on a restricted stock award?

Depending on plan rules, if you decide not to make a Special Tax 83(b) election, you have three options to meet your tax withholding obligation due at vesting:

• Net shares
  If you elect to net shares, the appropriate number of shares are withheld at vesting to cover the tax withholding obligation. You retain the number of shares vested less the number of shares withheld for tax purposes.
• Pay cash
  If you elect to pay cash to satisfy your tax withholding obligation, you must have the appropriate amount of cash in your account on the day of vesting. The money will be debited from your account upon vesting, and will be forwarded to your company for reporting and remitting to the appropriate regulatory agencies. You retain the full number of shares that vested.

  If you choose to pay your withholding obligation with cash from your Fidelity Account, please note that you must have cash in that account on the vesting date to avoid having your account restricted. Electing to pay for the estimated tax withholding with cash does not fund your account.

• Sell to Cover
  If you elect to sell to cover, you are directing Fidelity Stock Plan Services to sell a portion of your vesting shares to cover your tax withholding obligation and any applicable commissions and fees. Proceeds from your sale will be debited from your account and will be forwarded to your company for reporting and remitting to the appropriate regulatory agencies. You retain the number of vested shares less any shares sold for tax withholding, commission and fees.

Say that Mike has 250 shares of restricted stock vesting on January 1, 2004. Assume the stock price on January 1 is $10 per share and the tax withholding obligation is $725.

• Example 1 - Net shares
  When the 250 shares vest on January 1, Mike's company withholds 73 of the shares (73 shares x $10 per share = $730) to cover the $725 tax withholding obligation. Any overage goes towards Mike's federal income tax ($725 to cover his tax withholding obligation and $5 overage). He retains 177 shares (250 vested shares - 73 shares withheld to cover his tax withholding obligation = 177 shares).
• Example 2 - Pay cash
  On January 1 Mike must have $725 cash in his Fidelity Account to cover his tax withholding obligation. When the 250 shares vest on January 1, 2004, $725 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies to cover his tax withholding obligation. Mike retains the 250 shares that vested less the $725 cash used to cover his tax withholding obligation.
• Example 3 - Sell to Cover
  When the 250 shares vest on January 1, Fidelity Stock Plan Services sells 74 of the shares (74 shares x $9.90 sale price = $732.60) to cover the $725 tax withholding obligation. Any overage ($2.60) remains in Mike's account. He retains 176 shares (250 vested shares - 74 shares sold to cover his tax withholding obligation = 176 shares).

How is tax withholding calculated?

Tax withholding is calculated based on the total fair market value of your grants on the grant date (less the amount you paid for the shares, if any) multiplied by the tax withholding rate supplied by your company. You must have funds available in your Fidelity Account to satisfy the withholding obligation. The withholding will be sent to your employer for tax payment.

How can I determine how much will be withheld for taxes upon vesting?

Click Estimate Gain to estimate your tax withholding obligation. Enter your grant data to estimate taxable income and tax withholding on vesting.

83(b) TAX ELECTIONS

What is an 83(b) tax election?

Under Section 83(b) of the Internal Revenue Code, you can change the tax treatment of your restricted stock award shares. If you choose to make the Special Tax 83(b) election, you elect to include the fair market value of the stock at the time of the grant minus the amount paid for the shares (if any) as part of your income (without regard to the restrictions). You are subject to required tax withholding at the time the restricted stock award shares are received. In addition, a Special Tax 83(b) election causes the stock's holding period to begin immediately after the grant is granted.

Under 83(b), you are not subject to income tax when the shares vest (regardless of the fair market value at the time of vesting), and you are not subject to further tax until the shares are sold. Subsequent gains or losses of the stock would be capital gains or losses (assuming the stock is held as a capital asset). However, if you leave your company prior to vesting, you would not be entitled to any refund of taxes previously paid or to a tax loss with respect to the stock forfeited.

How long do I have to make an 83(b) election?

A Special Tax 83(b) election form must be filed in writing with Internal Revenue Service (IRS) no later than 30 days after the date of the grant, and you must send a copy to your company. You must also include a copy when filing your yearly income tax return.

What are the advantages of making an 83(b) tax election?

The are several potential advantages of making a Special Tax 83(b) election:

• Establish cost basis now
  By paying tax on the grant now, rather than when the shares vest, the current stock price will be established as the cost basis for the shares awarded. When the shares do vest, no tax will be due until the shares are sold, regardless of how much the shares may have changed in value.
• Control the timing of future income recognition
  Gain (or loss) would be recognized only when the stock is actually sold and would not be triggered by the lapse of restrictions at vesting.
• Benefit from favorable capital gains treatment
  Assuming the stock is held as a capital asset, future gains (or losses) would be taxed only as capital gains, and, therefore, would be subject to favorable capital gains tax rates (currently 20% compared with a maximum 2003 rate of 38.6% for ordinary income tax).

What are the disadvantages of making an 83(b) tax election?

The are several potential disadvantages of making a Special Tax 83(b) election:

• Falling share prices
  If the stock price declines during the vesting period, there is a risk that you would pay more taxes based on the fair market value on the grant date than you would have paid at vesting.
• Timing of tax payment
  Since taxes are due when the award is granted, you must use other funds to pay the tax withholding obligation. Under normal tax treatment, you do not owe taxes until the grant vests. You could potentially use some of the vesting shares to cover your tax withholding obligation.
• Risk of forfeiture
  If the restricted stock award is forfeited (e.g., if you leave the company before the stock vests), a loss cannot be claimed for tax purposes with respect to the restricted stock award. Additionally, there is no refund on the tax paid on the restricted stock award.

How do I accept or decline a special 83(b) tax election?

Click Select 83(b) Tax Election to display the Select 83(b) Tax Election page. Click Select 83(b) Election next to a grant. Read the 83(b) tax election terms, and follow the on-screen instructions to preview your election and notify Fidelity of your intention to accept or decline the 83(b) tax election. A confirmation page displays a unique number referencing your intention to accept or decline the 83(b) tax election. If you contact Fidelity, use this number to identify your decision. You should print this confirmation for your records.

If you accept the 83(b) tax election, you must fill out a Special Tax 83(b) election form and file it with the Internal Revenue Service (IRS) within 30 days of the date of grant. You must also send a copy of the Special Tax 83(b) election to your employer, and attach a copy of the form when you file your yearly income tax return. Under the IRS rules, an 83(b) election is irrevocable; the election is made when the form is filed with the IRS.

For more information on filing the form or the 83(b) tax election, please contact a Stock Plan Services representative at 1-800-544-9354. Consult your tax adviser regarding the income tax consequences to you.

Related Help Topics

• Accepting and Declining Grants