The stock is “restricted” because it is often accompanied by a vesting schedule before the employee has full ownership of the stock. Once the vesting schedule requirement is met, the company then distributes the stock to the employee, either in shares or cash equivalents, depending on plan rules.
What are the different types of restricted stock?
Two variations on restricted stock are restricted stock units (RSUs) and restricted stock awards. A restricted stock unit is granted to an employee and represents the promise to give a certain number of shares of the company's stock at a predetermined time in the future.
Are restricted stock and stock options taxable?
However, RSUs are given for free and only have value after they have vested, differing from stock options. Both restricted stock and RSUs become taxable only when the vesting schedule has been completed. With restricted stock, the full amount of the vested stock has to be taxed as ordinary income in the vesting year. What Is Restricted Stock?
