If Amazon 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.

Transcript:

Hi everyone, this is Nathan Donohue with Consilio Wealth Advisors and today I'll be bringing you your cheat sheet to Amazon RSUs. Today we'll be covering three main topics, the first of which is Amazon's vesting schedule for their RSUs, the second of which is the tax treatment when they ultimately do vest, and third and final is once we do receive the shares and they vest, what do we do with them?

First up, we want to cover Amazon's vesting schedule for their RSUs. Amazon has a unique vesting schedule. It is tail-weighted and I'll describe what I mean by that. It is a four-year vesting schedule. However, after your first year at Amazon, you make it through your first year and 5% of your original grant will vest. After your second year, an additional 15% of your original grant will vest.

So, we think about that two years into our four year vest halfway through you've received 5% in year one, an additional 15% for year two. So, you're halfway through, but you've only invested 20% of your original vest. Now starting in year three, this is where it starts to become tail weighted, so in year three, after this first six months in year three, you'll receive 20% of your original grant and then after the second six months in the third year, you're receiving it additional 20%.

So, in total in year three, you're receiving 40 % best of that original grant. Year four is a mirror of year three. So again, six months into year four, you receive 20%. And then for the second six months, you receive an additional 20%. So, in year four, again, you're getting 40% of that original grant. So, you're getting 80 % of that grant in the last two years and only 20 % in the first two years. That's what we mean when we say it is tail-weighted. So that's number one is the vesting schedule. Little unique.

Number two is we should cover the tax treatment of when these RSUs do ultimately best. So, when you receive RSUs from Amazon, that is a form of W-2 compensation. So, what that means is I receive RSUs today, I'm going to be taxed on those RSUs as if it's ordinary income at whatever my effective rate is so let's take an example where today I'm going to vest 100 shares of Amazon, 100 RSUs are going to invest today. By default, Amazon is going to sell 22% of those RSUs. So, I'm going to receive 100 RSUs today, they're going to take 22, sell them and take the cash and send that to the IRS for my federal withholding tax. Same way they do with my normal cash paycheck, they withhold a little bit of that cash and send it to the IRS to help cover my federal income taxes. They do the same thing with RSUs. That default rate is 22%.

Now, this is where we see a lot of our clients get a surprise come tax time is because their specific tax rate could be lower than 22% but in many cases, it's higher. Their household might be taxed at 25, 28, 30, or even higher and in which case, if you've only been withholding 22%, once you go to file your federal income taxes, they're going to say, hey, you should have actually been withholding 28 or 30%. and you now have a large tax bill and potentially even some penalties and interest for not having paid your taxes on time throughout the year. So, this is a piece that we always strongly encourage our clients to take a look at is to identify what's an appropriate withholding rate and make sure that you update that as those RSUs are investing. So that's the second item is how are those RSUs taxed when they do ultimately invest.

The third item is now that I've received my RSUs, what do I do with them? So, I've received my Amazon RSUs today. I get my vest. I can hang onto those shares, in which case I am now a part owner in the company and so as the company's stock goes up or goes down, I will participate in that performance. I can also sell a few of those shares in order to potentially diversify into other investments. I might want to fund some retirement accounts or a college plan for some of my kids. You could sell some of those RSUs for purchases. It could be the purchase of a home.

You might have medical expenses that you need to cover as well. You can also use these shares for charitable donations. Some clients might opt to say, I'm going to, rather than writing a check to my favorite nonprofit, I'm going to donate some stock that's an option available to you as well. What's extremely important here when you do go to liquidate is that many Amazon employees are subject to trading windows and so, because many Amazon employees have access to private, or non-public information, which could be construed as insider trading, Amazon restricts your trading to only certain periods, typically after they've released earnings so that all the information is public to the market and it's deemed to be a fair and appropriate time for you to trade. So that is one thing to note is that in many cases, a lot of our clients both cannot trade, buy or sell. They also cannot donate any shares unless they are inside of these trading windows.

For this third and final item, we believe it's really important that our clients work with a financial planner in order to help them identify how many shares should I hang on to, how many shares should I sell, and not only how many, but specifically which ones. So, as you continue to receive Amazon RSUs, you'll have varying gains depending upon when those shares vest and so it's extremely important to identify what are the right shares to sell and what are the right shares to donate and so we strongly encourage folks to work with a CFP professional when making some of those decisions in the context of their financial plan.

But that was it. So that is your cheat sheet to Amazon RSUs. Again, we covered one, the vesting schedule, two, how are they taxed, and then three, now that you've got your RSUs, what do you do with them?

I hope you enjoyed this video. If you did, please like, and subscribe. We'll have a lot more content coming and otherwise look forward to seeing you soon.