Nike Employees: Tax Implications of Restricted Stock Units (RSUs)

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Understand how Nike RSUs can affect your overall portfolio

nike rsus corporate headquarters beaverton oregon

By Karen Harris, CFP®

Working for Nike has its advantages, particularly the investment options for employees. Part of Nike’s corporate compensation package includes an option to choose Restricted Stock Units (RSUs) to provide employees a way to diversify their investments. Despite the name, RSUs are not the same as stock or restricted stock. It is important to recognize the differences, especially regarding tax benefits and implications.

Let’s dive into what RSUs are, how they’re different from stock options, and how to maximize this part of your Nike compensation package to its highest potential.

What Are Restricted Stock Units?

Restricted Stock Units are one of several ways an employer can give their employees shares in the company. One of RSUs’ biggest advantages over stock options is that RSUs are worth something, even as the stock price drops.

RSUs follow a vesting plan, where employees receive distributions of the RSU after meeting certain performance goals or company milestones. The granted stock holds no value until it becomes fully vested.

Nike Benefits Series

 
Let’s look at a sample scenario to see how this process works:

Your company gives you 800 RSUs to vest over four years (200 shares per year). Each share is worth $85, so the total value is worth about $68,000. After the first year, you have 200 vested shares (valued at $17,000), then 200 more shares the next year, and so on.

During this time, Nike is likely to experience stock fluctuations, which will affect the value of your vesting shares. As share fully vest, the value of the RSU becomes ordinary income, and you must pay taxes on it. Nike will withhold a portion of the shares to pay the tax, similar to how they withhold taxes on your paycheck. This ensures you don’t have to come up with a large sum all at once when you file your annual tax return. At this point, you have the option of keeping your RSUs or selling them.

RSU Tax Implications for Nike Employees

One aspect of RSUs that catch individuals by surprise is that they are taxed at vesting—not at exercise, like stock options.

Nike RSUs vest at the typical 25-25-25-25 structure that most companies follow. The IRS considers RSU vests “supplemental wages,” which are withheld at a standard 22 percent regardless of your actual tax rate. If the amount you earn is sizeable, the tax withholdings might not be enough to cover your tax liability, and you’ll need to make up the difference out of pocket.

If you choose to hang onto your RSUs, you’ll have to pay capital gains tax on the difference between the sale price and the vest price when you choose to sell them.

At vesting in the first year, imagine if the market price is $95, which translates into $19,000 of income. Then the price at vesting in the second year is $107 ($21,400 of income), $122 in the third year ($24,400 of income), and $140 in the fourth year ($28,000). This is a total of $92,800 of income, and each year’s income is taxable on its vesting date when the employee receives the shares. For some, additional income annually isn’t of concern. For others, it is advantageous to keep control over the timing of income through another vehicle, such as stock options.

Now let’s say you sell two years after you receive the last of your shares, and the market price is $180 (or $144,000 for 800 shares). Your capital gain is $51,200 ($144,000 in current value minus $92,800 ordinary income) and will be reported on Form 8949 and Schedule D.

How to Maximize Nike RSUs

Nike’s corporate compensation package is attractive in many ways, especially when you know how to optimize your selections. It is important to consider how financially dependent on the company your personal situation is (i.e., relying on Nike for both paycheck and investment portfolio) as you consider the best time for a sale.

For many individuals, it makes sense to sell shares upon vesting and put the dollars to work. This might be through paying down debt, saving for retirement or future college expenses for children. Since you pay taxes upon vesting, additional tax consequences are often minimal.

Schedule a consultation today with a Brighton Jones financial advisor to better understand the full costs and benefits of Nike RSUs so you can leverage your portfolio options and avoid tax surprises.

Karen Harris, CFP® serves as an advisor at Brighton Jones.

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