Updated: 08/24/2022
Restricted stock units, or “RSUs” for short, allow companies to grant shares to their employees. While “traditional” stock options can effectively lose their value if the company stock price is below the “strike” or “exercise” price, that’s not the case for RSUs. They’re usually worth something, regardless of how low stock prices get (assuming the company stays in business!). That means these equity awards can be quite valuable.
Employees who receive RSUs from their employer can’t use them until they “vest”–that is, until they get converted from restricted units to actual shares of stock. At that point, your RSUs will be considered taxable earned income. Your earned income is a simple calculation of the stock price on the day of vest multiplied by the number of shares vesting that day.
Example: You have 600 shares vesting and today’s stock price is $150 per share. You will have $90,000 of income recognized today.
If you work at Amazon, there’s a good chance that you are eligible for RSUs along with your other benefits. For everything you need to know about Amazon RSUs, keep reading.
Does Amazon Give RSUs To Employees?
As of 2022, the majority of Amazon employees are eligible for RSUs. There are some exceptions, however. If you work fewer than 30 hours each week, for example, you are considered ineligible for these stock grants. Additionally, employees at certain job levels cannot receive RSUs. Assuming you don’t fall into either of these categories, Amazon should extend this benefit.
How Many RSUs Do Amazon Employees Get?
There isn’t a static number of RSUs that all Amazon employees receive when they get hired. Instead, you’ll receive a certain number as part of your compensation package, based on the target compensation level of your level and role. That is partially due to Amazon’s desire to align its employees’ interests with its interests as a company. By letting its workers own a small portion of the business, Amazon hopes to encourage them to prioritize its success.
When you start working at Amazon, you’ll receive an RSU Award Summary. Amazon employees often get additional RSU grants on an annual basis, most commonly during their annual review and compensation adjustment which happens in Q1 of each year. If you’re new, you typically won’t get additional shares awarded at your first review, so don’t be alarmed if this happens to you.
When Do the RSUs Vest?
While most employee RSU grants vest at a rate of 25% each year over the course of four years, that isn’t the case at Amazon. Instead, their on-hire RSU vesting schedule works as follows:
Year 1: 5% of the initial grant will vest at the end of your first year as an Amazon employee.
Year 2: 15% of the grant will vest at the end of your second year.
Year 3: 20% of the grant will vest at the six-month point of your third year. The grant will vest again at the same rate at the 12-month mark, for a total of 40%.
Year 4: The grant will be identical to the plan for the third year.
If you’re finding it difficult to follow this schedule, looking at an example might help. To start, let’s say you’ve been granted $500,000 in Amazon RSUs. This would be converted to an initial grant of 4,000 shares assuming a $125 per share stock price on your grant date. To keep things simple, we’ll assume that the price of Amazon stock will stay the same over the four-year grant period AND we’ll ignore taxes. Here’s how that grant would be vested over the next four years:
5% of your initial grant ($25,000) would vest when you hit your one-year anniversary with Amazon.
At your second anniversary, another 15% ($75,000) would vest.
Instead of waiting another year before the next 20% ($100,000) vests, this would happen six months later and again at your third anniversary. The result: a total of $200,000 for the year as a whole.
The schedule for the third year would repeat in the fourth year. When all is said and done, you’ll have $500,000 in vested RSUs.
One more thing to note: This is how the vesting schedule for Amazon RSUs works right now, but that might change soon. In an effort to boost employee retention, Amazon might switch to a monthly vesting schedule for at least some of its employees.
As mentioned above, once you’ve completed your second year with Amazon, you’ll be eligible for another RSU grant. Depending on how the stock performed and how you are ranked in your role, you may or may not receive more RSUs. But even if you do, they typically won’t vest until at least year 4 and sometimes year 5.
RSU grants awarded during annual performance reviews almost always vest in May and November of each year. They don’t necessarily follow an even schedule either, so don’t expect 2,000 shares perfectly distributed to vest 500 every May and November. Amazon is one of the few companies that uses the stock value at vest to determine your target compensation band in that current compensation year. Many companies ignore the value at vest and instead determine their award value at grant, regardless of what those shares are worth at vest.
Once your sign-on stock grant is fully vested after year 4, things get a bit simpler because your vests will almost always follow a May/November schedule.
There are some exceptions to this, like if you take a leave of absence, or are at a level in which you receive quarterly vests. But the vast majority of employees who are receiving RSUs vest on this May/November schedule.
Tax Treatment
Of course, it’s wise to have an investment plan in place for your RSUs well before they hit their vesting date. When that time comes, you’ll have two basic options to get started:
Selling RSUs for taxes. To take this option, sell enough shares to pay off the withholding taxes on the value of your shares. Then, hold the rest of the proceeds in Amazon shares. Keep in mind, you’ll get the shares based on their price on the vesting date. This is called a “sell-to-cover” transaction and the default is 22%. Meaning, if you receive 2,000 shares, they will automatically sell 22% of them and send them in for Federal tax withholding. Early in the year, withholding will be slightly higher to cover Medicare and Social Security tax as well, typically 28% total withholdings.
This default is the minimum recommendation and best practice for vesting shares. We do not recommend that you change this to not withhold for taxes and instead plan to pay your tax bill with cash at the end of the year.
Selling RSUs for cash. That is as simple as it sounds–you’ll sell your shares and get the proceeds. Note that this will still incur the default sell-to-cover amount listed above, and it should, so that you don’t potentially have a large, unexpected tax bill at the end of the year.
Note that depending on the level of your RSU income, the 22% sell-to-cover default will be nowhere near enough tax. If you find yourself owing a lot of taxes each year, you may want to increase your default withholding amount. You should be able to change your election for a single grant, or all previous and future grants at www.amazonstock.com.
For those who are subject to trading windows, you can only make a change to your tax election during an open window. For more info, you can visit your internal page: www.amazonstock.com
What Can Be Done with RSUs After They Vest?
After you’ve figured out how to collect your RSUs, it’s time to decide what you want to do with the money. There are countless investment opportunities worth considering, such as:
Boosting your 401(k) contributions. If you’re having trouble maxing out your 401(k) with just your base salary, you can sell shares to boost your cash position, allowing for larger 401(k) contributions. Note that you cannot contribute RSUs directly to your 401(k). The only way to contribute to a 401(k) is through a payroll deduction.
Contributing to a 529 account. Are you trying to support your children’s higher education? If so, a 529 account can help you prepare for that.
Adding to your personal savings. If you don’t have any pressing financial issues to deal with, RSUs can make it easy to build a nest egg.
Preparing for emergencies. No one knows what will happen to their finances in the future. For people who haven’t already created an emergency fund, this is the perfect time to do so. Also, many Amazonians are subject to trading windows which means they can’t sell whenever they want! Don’t get caught needing cash while you can’t sell your shares! (this happens to at least a handful of our clients each year)
Have some fun. It’s not all about saving. We advise our clients on how to spend their money (responsibly) so they get to enjoy the lifestyle they want while still achieving their financial goals.
How to Know You’re on the Right Path
When you understand how they work and have a solid investment strategy, Amazon RSUs can serve as a considerable contribution to your wealth building. Despite this, trying to manage RSUs and other benefits without having confidence or context can lead to spending too much or saving too little.
Take control of this financial opportunity and get a plan in place. It’s a good idea to get expert advice on how you can utilize your RSUs to the fullest. It’s important to work with a financial planning firm that specializes in your unique compensation structure. It makes your life easy so you don’t have to explain all the intricacies of your company's benefits! Also, make sure that the firm you’re working with is a fiduciary, and make sure your advisor or advisory team consists of CERTIFIED FINANCIAL PLANNER™ professionals.
That’s why you should consider working with Consilio Wealth Advisors while creating a plan for your Amazon RSUs. Consilio specializes in working with tech professionals and we make a point of communicating clearly and simply (without the jargon) with our clients. If you’re looking for financial professionals who see the people they work with as people, set up a complimentary intro call.
DISCLOSURES
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
Consilio Wealth Advisors is not affiliated with Amazon. While CWA communicates with its clients regarding their Amazon employee benefits, and educates itself on Amazon Benefits, there is no guarantee that the information we have provided is accurate. Amazon employees are encouraged to contact their employer should they have any questions regarding their specific employee benefits. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.
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