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Thursday, June 29, 2017 6:59:34 PM
(this is what the SEC is referring to):
How do I pay taxes on restricted stock units?
Depending on plan rules, 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.
Assume that Mike has 250 restricted stock units vesting on January 1, 2004 but distributing on January 1, 2005. Assume the tax obligation at vesting is $500, the stock price on January 1, 2005 is $10 per share, and the tax withholding obligation at distribution is $725.
Pay Cash at Vest, Net Shares at Distribution
On January 1, 2004, when the 250 units vest, Mike must have $500 cash in his Fidelity AccountSM to cover his tax withholding obligation. The $500 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies. Mike is left with the 250 units that vested.
When the 250 shares are distributed on January 1, 2005, 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).
Example 2 - Pay Cash at Vest and at Distribution
On January 1, 2004, when the 250 units vest, Mike must have $500 cash in his Fidelity AccountSM to cover his tax withholding obligation. The $500 is debited from Mike's account and forwarded to his company for reporting and remitting to the appropriate regulatory agencies. Mike is left with the 250 units that vested.
On January 1, 2005, when the shares are distributed, Mike must have an additional $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.
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 assumed stock price at time of sale = $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).
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