The NASPP Blog

April 20, 2010

RSUs and Your General Ledger

Journal Entries for RSUs

A question that comes up with some regularity here at the NASPP is what the journal entries are for RSUs where shares are withheld to cover the taxes due upon vesting. Often enough that it would be handy to have a resource that I can point to that describes the entries. So, in this week’s and next week’s blog entries, I use an illustration to explain the journal entries for an RSU from grant to release.

The Scenario

An RSU for 1,000 shares is granted when the FMV is $4 per share (a total expense of $4,000). The RSU vests in full when the FMV is $10 per share (resulting in an aggregate taxable gain/tax deduction of $10,000) and is paid out upon vesting. The company’s tax rate is 40% and the employee’s tax rate is 26.45% (to keep it simple, assume the employee is maxed on Social Security and isn’t subject to state income tax). The total tax withholding on the release is $2,645. The shares withheld will be rounded up to 265 shares, resulting in an issuance of 735 shares. The excess withholding will be deposited with the employee’s federal tax payment. The stock has a par value of $.01 (this is very important–the journal entries for a no par stock are slightly different).

This week we start with the easy stuff–the entries to account for the expense recognized for the award and the company’s tax deduction. Next week we’ll tackle what should be easy, but was actually harder to figure out–the entries for the shares issued upon exercise and the share withholding.

Compensation Expense

To account for the compensation expense recognized over the period the award vests:

  • Debit to compensation expense for $4,000 and a corresponding credit to additional paid-in-capital (APIC) in this same amount. This would not be a single entry, but would be divided into separate entries for each interim period during the award’s service period. For example, if the award were granted at the beginning of the company’s fiscal year and vested at the end of the year, the company would make four separate pairs of entries for $1,000 each.

Company Tax Deduction

To account for the tax deduction the company expects to receive when the award is paid out:

  • Debit to a deferred tax asset (DTA) account for $1,600 ($4,000 x 40%) and a corresponding credit to a deferred tax benefit (which is a tax expense account) in the same amount. This entry will reduce reported tax expense for the period. Same as with the compensation expense entries, this entry is divided into separate entries for each interim period.

To write off the DTA and account for the company tax deduction upon vesting of the awards and release of the underlying shares:

  • Debit to deferred tax expense of $1,600 (the amount of the previously recorded DTA) and a credit to the DTA account of $1,600.
  • Debit to current taxes payable of $4,000 (the tax savings the company realizes as a result of the $10,000 tax deduction), with a credit to current tax expense of $1,600 and a credit to APIC of $2,400. Only the DTA recorded while the award was expensed reduces tax expense; the rest of the tax savings is treated as APIC.

Tune in next week for the rest of the story…

Last Chance to Participate in the Domestic Stock Plan Design Survey
This week is your last chance to participate in the 2010 Domestic Stock Plan Design Survey.  You must complete the survey by Friday, April 23–we absolutely will not be able to extend this deadline. 

New Early-Bird Discount Announced for NASPP Conference
For those companies that weren’t able to get their registration for the 18th Annual NASPP Conference in by the early-bird deadline, we are offering a $200 discount on registrations received by May 14.  This will be your last chance to save on the Conference–we won’t extend the deadline for this rate.

The Conference will be held from September 20-23 in Chicago.  Last year’s Conference sold out and we expect even more attendees this year.  

Finish the 2010 Domestic Stock Plan Design Survey by April 23 and you can receive an additional 10% off the Conference.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara