If you are an employee at Microsoft, you very likely have Microsoft stock awards, officially known as Restricted Stock Units (RSUs), as part of your compensation. For many Microsoft employees, stock awards will make up a significant portion of your total compensation. They may be awarded as part of a hiring package, as part of annual compensation, or merit based and are given as RSUs.

When Do Your Microsoft RSUs Vest?

On-hire stock awards – these typically vest 25% per year over four years, with one vest annually on your employment anniversary. Generally, your on-hire stock award shares will not vest until one year after employment starts.

Annual stock awards – each August, Microsoft employees are eligible to receive new stock awards. If you started early in the year, you could receive your first stock award in August, with the first tranche of that award vesting in November.  These stock awards vest over five years (20% per year), on a quarterly basis. An easy way to remember when your annual stock awards are vesting is to use an acronym called FMAN (February, May, August, and November).

There are also special and leadership stock awards that are typically offered to exceptional employees or those in management positions. These awards typically have a different vest schedule than the regular annual review awards.

How are RSUs Taxed?

When Microsoft stock vests the total value of those vesting shares is taxed as ordinary income to you, regardless of whether you sell or not. At the point when RSUs vest, your custodian will sell some of the stock to mitigate the taxes you owe. This is at least 22% (which is the federal default minimum) and can be as high as 37% in 2021.

If you’re Level 65 or above, you can go in and change the withholding amount. It is highly recommended that you look at this and make sure you’re not under-withholding shares — otherwise, you could find an unpleasant surprise come tax time. If you hold onto your vesting Microsoft shares for at least a year, any potential gain will get the preferential long-term capital gains tax treatment when and if you sell.

Can You Live Off Your Microsoft RSUs Rather Than Your Salary?

The short answer is yes, it is possible to strategically use your RSUs for cash-flow and take full advantage of your tax-preferred Microsoft benefits. Most people direct a large portion of their salary and cash bonus into their bank accounts and allow their RSUs to pile up in an investment account. We encourage you to flip this mindset and push as much of your salary and cash bonus into tax-advantaged accounts such as your Microsoft 401(k), Health Savings Account, or the Microsoft Deferred Compensation Plan (available to Level 67 or higher), and then sell your RSUs as they vest. The advantage of this strategy is twofold, with careful planning you can use your RSUs to fund your cash flow and diversify out of a concentrated position within your portfolio.

Long-Term Financial Planning for Microsoft Employees

We encourage you to make the most of what you have earned as a Microsoft employee and develop a strategy for managing your salary, bonuses, and stock awards based on your financial goals.

Schedule time with our team to discuss any questions you may have.