Restricted Stock Units - Income Tax

Income Tax treatment of Restricted Stock Units given to office holders and employees

Overview

In recent years, the award of shares and the entitlement to a future award of shares is made through a variety of schemes. One such scheme is known as Restricted Stock Units (RSUs).

Whilst each case has to be examined on its merits to determine the correct tax treatment of the relevant unit, the following tax treatment will, in general, apply.

Restricted Stock Units (RSUs)

A Restricted Stock Unit is a grant (or promise) to an employee to the effect that, on completion of a ‘vesting period’, he/she will receive a number of shares or cash to the value of such shares (i.e. in general, no shares or cash value of such shares will pass to the employee until the ‘vesting period’ has passed). A restricted stock unit is, generally, evidenced by way of a certificate of such entitlement.

The ‘vesting period’ is the period of time between the date of the grant (or promise) of the shares (or of the cash value of such shares) and the date on which the vesting condition is satisfied. Vesting periods are usually satisfied by, for example, the passage of time or by the individuals’ employment performance

Tax treatment of RSUs

An RSU is not a share option to which Section 128 TCA 1997 applies but rather is a taxable emolument of the employment chargeable to income tax under Schedule E (Section 112 TCA 1997) or Case III of Schedule D, as appropriate.

Where chargeable to income tax under Schedule E:

1. The receipt of shares/stock in the company in which the individual holds his/her office or employment (or shares in a company which has control (within the meaning of Section 432 TCA 1997) of that company) is not within the scope of PAYE - see Section 985A TCA 1997; and
2. The receipt of shares other than shares referred to in (a) and / or cash is within the scope of PAYE.

Timing of taxation of awards of RSUs

The income tax liability of the shares (or the cash amount of such shares) arises either:

1. On the date of vesting (rather than on the date of the grant) of a restricted stock unit; or
2. Where the shares or cash pass to the employee on a date prior to the date of vesting, on that prior date.

Payment of dividend equivalents

In some instances, employees granted an RSU may be entitled to amounts equivalent to the dividends accruing to the shares promised under an RSU. Such dividend equivalents are taxable emoluments. The rules of the RSU will usually determine the year of assessment although, in general, the year of assessment is likely to be the year of payment.