Depends on the local tax laws. You pay income tax on vesting of RSU. In the US and Europe, RSUs are difficult to get wrong because of share withholding.
In other countries, they are risky if you don’t watch out:
1. RSU vest at $10
2. You have to pay additional income tax eventually of let’s say $2 because of that valuation. (the US and Europe would only hand out shares worth of $8 and withhold the $2 taxes for you. Other countries make this your responsibility and give you the full $10).
3. Stock crashes, your shares are only worth $1 if you would sell them now.
How do you pay the $2 tax from 2., once tax is due, if your shares are only worth $1? Multiply that by 1,000 to 100,000 RSU that vested and you get into difficult decision territory quickly.
Obviously, you can hedge against that by selling the appropriate amount of RSU on vesting day.
> In the US and Europe, RSUs are difficult to get wrong because of share withholding
I believe the withholding is 22% by default. If you're living in CA and have a large RSU vest, then your actual tax liability is much higher. Friends at Coinbase had an initial $75k (yearly) grant vest at $750k. They didn't sell, and that grant is currently worth $150k. Their 2021 W-2 claims they made much more money though.
(This is neither tax advice nor investment advice, or any other sort of financial or legal advice, ofc.) IIRC, RSU grants are taxed as income, but only at their value when they vest. So, gains or loss don't "matter", in the sense that they don't affect the amount you need withheld for taxes. I.e., you're taxed on the current value, which then becomes the cost basis; any further gains/loss is taxed as capital gains/loss.
In this particular example, I would have expected the employer to withhold the appropriate amount when vested. (The subsequent loss is, ofc., unfortunate, but it's no different than any other investment.)
Now, if their employer didn't withhold the appropriate amount, and they didn't know about it / didn't account for it, and combined with the rather exceptional circumstance of that stock (although… you're in crypto, and you're not accounting for volatility?) … yes, that is going to be a large tax bill. But the type of person here getting this level of a grant ($75k) can most likely cover it[1]. (Though, I do grant that this is exceptional — but that's also part of the point, too.)
AIUI, when this situation applied to me, the idea was that the employer knows that they're in CA, and should thus account for that & withhold appropriately.
[1]: assuming a 30% tax on the vest, that's a $225k bill. The un-withheld portion from your assumptions is $60k; there's still $150k in stock that could be liquidated to cover that bill, or, I presume the type of individual getting a $75k grant is more than likely going to have $60k in savings. If it's 0% withheld, that's $225k - $150k = $60k in savings one would need. We can, ofc., contrive a situation here where that person has $0 in the bank.
While I wasn't aware other countries didn't do the automatic withholding … seems like you can (and should) still do that yourself. You know you're going to have a tax liability. But even then, in the event that I had forgotten, the few RSU awards I've gotten amount to "nice bonus" amounts. The tax liability would be easily covered by normal salary/bank account.
And, after vesting, I've always considered any RSU then just … a normal stock. You have to decide whether you believe enough in the company to continue holding it, or if it'd be better off turned into cash &, if you want investments, then just mixing the cash into whatever you normally put your money into.
> Multiply that by 1,000 to [$1M of RSU awards] and you get into difficult decision territory quickly.
Getting RSUs doesn’t ever “suck”, but getting 70%+ less (denominated in $usd) money in your quarterly vesting than before is unpleasant - even if you knew it was coming at some point and don’t critically depend on that income.
