On the day units vest three things happen in sequence.
On the day units vest three things happen in sequence.
The units become shares. The promise is fulfilled and the shares exist.
The value counts as income. Units vesting are treated as compensation, valued at the share price that day, exactly as if the company had paid you that amount in cash.
The company withholds. Because it is compensation, tax has to be collected at source, and the company does that by keeping some of your shares and sending cash to the tax authorities on your behalf. That mechanism is called net share settlement. You receive the shares that are left.
Rates depend on your own circumstances and this class does not cover them. What matters here is the mechanism, which is the same for everyone.
Apple discloses all of this in one year's numbers.
Two ratios come straight out of that.
37 million shares withheld out of 101,878 thousand that vested is about 36% of the shares.
$5,431 million remitted against $15.9 billion of vested value is about 34% of the value.
Those two agree with each other, which is what you'd expect. Roughly a third of what vested never reached an employee's account. It went to tax.
Look at the cash line once more. $5,431 million left Apple as cash in a year when its share-based compensation expense was $10,833 million and no cash was supposed to move. That is the part people miss. Equity compensation is a non-cash expense, but the withholding on it is very much cash.
The trap is being surprised by the share count you receive.
You see 1,000 units vest and 640 shares arrive. Nothing went wrong. The company kept about 360 to cover withholding, in the same proportion Apple's figures show. If you budgeted on 1,000 shares you budgeted on a pre-tax number.
The second trap is a real financial one. Withholding at a standard supplemental rate may not match what you actually owe. If your total income puts you above that rate, the shares withheld will not cover the bill, and the shortfall is yours to settle later. People with large grants discover this the following spring. Check whether your withholding rate matches your situation, and if you are not sure, that is a question for a tax professional rather than a guess.
The third trap is holding by default. The moment your shares vest you have been paid in company stock and then chosen to keep it. That is a decision, even when it is made by doing nothing.
A colleague expected 1,000 shares and 640 arrived. She thinks payroll made a mistake.
What happened to the other 360?
They were withheld to cover tax on the vesting value and the company remitted the cash equivalent.
Is that proportion unusual?
No. Apple's own disclosures for FY2023 imply about 36% of vested shares withheld and about 34% of vested value remitted.
She asks what she was actually paid.
The full 1,000 shares valued at the vesting day price. She received 640 of them and the rest went to tax on her behalf.
She asks whether she's now finished with it.
Not necessarily. Withholding at a standard rate can be less than what is finally owed. Whether there's a shortfall depends on her total income and is worth checking with a tax professional.
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