Your cheat sheet to Microsoft RSUs (and all you need to know)

If Microsoft RSUs are part of your compensation package, you need to watch this video!

We cover the standard on-hire vesting schedule, tax treatment upon vest, and what to do once you vest.

Transcripts:

Hi everyone, today we'll be giving you your cheat sheet to Microsoft RSUs. My name is Nathan Donohue, and I am a partner and advisor with Consilio Wealth Advisors where we provide financial planning to technology professionals.

Now as a Microsoft employee, one of the key elements of your compensation plan is going to be your stock awards, or oftentimes referred to as restricted stock units or RSUs. Now the first RSUs you'll receive as a Microsoft employee will likely come as an on -hire stock award. This will be part of your hiring package. So in addition to your base salary and your other benefits, Microsoft will give you an on -hire stock award. As a current employee, you'll also typically receive annual stock awards or refreshes each August.

These are typically granted after a performance review. There are also leadership stock awards and special stock awards. However, these are typically reserved for people that are in a leadership position or who have exceptional performance. Now the number of RSUs that you're granted as a Microsoft employee will vary. It'll oftentimes vary based upon your job performance as well as the stock price and your target total compensation package. Also, higher levels such as level 64, 65, 66 and up will typically receive greater RSUs as a percentage of their overall compensation package.

Also, I think it's really important to note that just because you are granted RSUs does not mean you own them. You have to stay with the company long enough in order for them to vest. So we'll talk about that next. So the vesting schedules are different for each of these types of stock awards. Your initial on higher stock awards, will have a vesting rate of 25% per year.

When you're first hired, one year later, you will invest 25% of that initial on -hire award. So if you're granted 100 shares on your hiring date, one year after you've stayed with Microsoft, you'll receive 25 of those initial 100 shares. Your annual stock awards vest at a 20% per year rate. So on contrast to your on -hire RSUs, those that will have a five -year vesting schedule, however, those will start vesting quarterly.

So you don't have to wait an entire year to receive those shares. Those will start vesting on a quarterly basis. Now your special stock awards and leadership stock awards don't follow either one of these schedules. So you'll need to handle those on a case by case basis.

And the question might be what can be done with your RSUs after they vest? After they vest, after I take ownership and receive those as part of my compensation package, what can I do? Now by default, one thing to note is that Microsoft has a 22% sell to cover election.

That means that they will sell 22% of your RSUs on that best date and take the cash proceeds from that sale to pay your federal withholding income taxes. Now your individual or household tax rate might be different than the 22% default. It could be lower, it could be higher. Now in cases where your tax rate is higher, we strongly encourage people to update this withholding rate so that you're not surprised come tax time.

For example, if your household is taxed at a 30 % rate, but Microsoft is only withholding 22%. You're not withholding enough and sending enough in for your taxes throughout the year, which means you're going to have a substantial bill come tax time and likely interest in penalties for late payment.

So coming back to what to do with the RSUs, there are a couple different things you can do. You can hang onto those RSUs. If you're long on Microsoft, you can maintain your position in the company. You can also liquidate some of those shares to help pay bills and increase your 401k contributions from your normal paycheck.

You can sell some of those shares and diversify. You can also use some of those shares to make charitable donations. Many Microsoft employees choose to be financially supportive of other nonprofit organizations and Microsoft provides valuable charitable matching as well. In any case, you have plenty of options. We encourage you to work with your financial advisor to determine what path or paths is best for your situation. I hope this was helpful. If you like this video, please like subscribe. We've got a lot more content like this coming. Thanks again.