22 Feb Am I taxed on stock I inherited from my husband?

Q. My husband died recently and I inherited his company stocks. I received a 1099-MISC for $104,400. The stocks are all Restricted Stock Units (RSUs). Do I have to pay tax? The stock has already been transferred to my account.
— Wife

A. Restricted Stock Units (RSUs) can be complicated.

Let’s start at the beginning.

When your husband passed away, his stock holdings would get a step up in basis to the value on his date of death, Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

For example, if he owned 100 shares of XYZ Company that cost $10 per share, the original cost basis would have been $1,000. If the same 100 shares had a price of $20 per share on his date of death, the cost basis increases to its value when he passed or $2,000, regardless of the actual purchase price, Karu said.

RSUs are grants valued in terms of the underlying company stock, but that stock is not issued when the grant is issued, Karu said.

“There are vesting requirements that must be fulfilled for an employee to receive them, such as working for `X’ number of years,” he said. “After that requirement is met, the company would distribute the shares.”

Once the RSUs are granted, the employee decides whether to accept the grant, he said.

If accepted, the employee may have to pay a set purchase price to the employer, he said.

After accepting the grants, making the payment, if required, and satisfying the vesting requirement, the employee would receive the share, Karu said.

“For income tax purposes, the employee is not taxed at the time of the granting of the RSUs, but taxed at vesting,” he said. “The income is calculated by taking the difference between the fair market value of the grant at the time of vesting or distribution minus any amounts paid for the grants.”

You’ll need to see if any unvested RSUs held by your husband when he died immediately vested. In that case, in order to receive them, the estate must pay for the shares.

“The employee’s tax basis is equal to the amount paid plus any amount reported on that employee’s W-2,” Karu said. “That amount would be reflected in both Box 1 and Box 14, where it should be delineated.”

Given the complexities, you should meet with a qualified tax professional who can examine the specifics of these shares and what they mean to your tax situation.

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This story was originally published on Feb. 22, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.