RSU and ESPP taxation: what to understand before you decide

An email with "Vested" in the subject line, a number of shares, and a link to the trustee's system. The system asks for a verification code, then shows a table whose columns you don't recognise. You click "close". Next quarter another email arrives, and another after that.

Meanwhile, two sentences come up in kitchen conversations. "These are our company's shares, we know it from the inside, holding is the obvious move." Or: "Simplest to sell everything the moment we can and not think about it." Both sound like decisions. In practice, both are ways of not deciding.

Loyalty to the company, or calm at home

Part of you feels that selling is a kind of betrayal. You're building this company, you believe in it, and selling feels like voting against it. There's fear in it too: selling just before the stock climbs. As long as the shares are there, you're "people who believe in the company", and that identity has real value.

Another part of you looks at the number and pictures something concrete: a down payment, a year of calm, security for the family. That isn't a stance against the company. It's a wish for this money to be the household's money, not a line in someone else's system.

Both are right, each in its own way, and both belong in the plan.

Three questions tangled into one

Trustee systems are written for professionals, and HR's explanation often stops at "it's a benefit". So everything tangles into one big, heavy question: "what do we do with the shares?" Nobody separated the questions for you. There are really three separate questions, each answered on its own:

• When is the share really yours? That's vesting.
• How is it taxed? That's a question of track, answered by the Israel Tax Authority, the trustee and an accountant.
• How much of the household's savings is tied to the same company that pays the salary? That's concentration, and it's the one question no system will ever ask you.

This is general information, not personal or tax advice. No company or stock is named, and there's no price forecast.

RSU and ESPP in plain words

Aspect	RSU	ESPP
What you get	Units the company grants that become shares on vesting dates	The right to buy company shares
Do you pay?	Usually not for the share itself	You buy shares through payroll deductions, per the plan's terms
What sets the price	The share's value on dates the plan sets	A price the plan sets, sometimes at a discount to market
Where the tax answer is	Tax Authority, trustee, accountant	Tax Authority, the plan's terms, accountant

RSUESPP

RSU

What you get

Units the company grants that become shares on vesting dates

Do you pay?

Usually not for the share itself

What sets the price

The share's value on dates the plan sets

Where the tax answer is

Tax Authority, trustee, accountant

Vesting and the trustee: when the share is yours

Vesting is the date a unit granted to you becomes a share you can sell. Until then it's a promise that depends on you staying employed, under the plan's terms. Many plans vest in tranches, quarterly for instance, so the number in the email is just one tranche of several.

The trustee holds the shares under the plan, and in many Israeli plans under section 102 of the Income Tax Ordinance. The question to ask the trustee about each tranche: has the period the plan and track require passed, and what changes if you sell before it does?

RSU taxation and section 102: the questions, and where the answers are

There are no figures in this article, on purpose. Tax rates, conditions and holding periods are set in law and change, and the Israel Tax Authority publishes the current ones. What can be described is the questions:

• Which section 102 track is your plan on? Section 102 has several tracks, among them a work-income track and a capital track through a trustee, and tax works differently on each. The track appears in the plan documents and the trustee's system.
• What part of the gain counts as work income? Even on the capital track, part of the gain may be taxed as employment income. How that part is calculated is a question for the trustee or an accountant.
• Does surtax apply to you? On high income an additional tax may apply. One large sale in one year can change that year's picture.
• How is the ESPP treated? It has its own rules, depending on the plan's terms. Again, the answer is with the Tax Authority and an accountant.

The Tax Authority publishes the details of section 102 and the rules on allotting shares to employees on its site. An accountant can look at your case and calculate the tax on each tranche.

The concentration question: how much of your net worth rides on your employer

This is the easiest question to skip, and maybe the most important. A salary and savings tied to the same company move together, sometimes exactly when things are hard. A rough period for the company can bring both layoffs and a falling share price. The security the shares are meant to provide leans on the same place the income comes from.

An invented example, for illustration only: a household's net worth, the home minus the mortgage, pension, savings and the employer shares, comes to 1,400,000 ILS. The employer shares, at today's price, are worth 210,000 ILS. So 15% of net worth depends on one company, on top of the salary. There's no "right" number for that percentage. There's a number you know, or don't. Net worth and all your savings seen together have their own articles.

One table and one percentage

What you end up with is a complete tranche table, and one percentage that says how much of your net worth depends on your employer. No studying the Income Tax Ordinance, and no deciding to sell on vesting day itself.

The tranche table, from the trustee's system

• Grant date of each tranche
• Vesting date, past or still ahead
• Number of shares in each tranche
• Share price on the grant date
• The track, per the trustee
• Value of the vested tranches at today's price
• What percentage of our net worth this is

0 of 7 done

People who write a plan for the next vest usually describe three considerations: the tax on each tranche, as the trustee or an accountant calculates it; the concentration percentage; and the next few years' needs, a home, studies, an emergency fund. Some set a portion to sell at each vest, some hold, some decide by amount rather than percentage. What they share is that the plan is written on an ordinary day, not on vesting day. What goes in it is your decision.

In AlphaHome: when shares are sold and the money lands in the account, record it on the income screen as its own row, with its own source and description, so the household sees it as a one-off event rather than part of the salary. AlphaHome has no dedicated place for employer shares, so note the shares you still hold on paper, and work out the concentration percentage against the net worth the app shows plus the value of the shares.

After the sale, or after the drop

You sold, and the stock went up. You sold for security, and you got it. What stings now is the sense of having missed out, and that's understandable. Today: record the sale in the table, beside the reason you sold. What people in this spot describe is not buying back to fix a feeling; the decision is yours. Next time: write the reason before the vest, so there's something to check against.

You held, and the stock fell along with a wave of layoffs. Loyalty to the company kept your sense of belonging to it, and that wasn't foolish. Today: recalculate the concentration percentage at today's price. Next time: a written plan for the next vest, set on an ordinary day, perhaps with an accountant; what it says is your decision.

Knowing what you have

Leave the vesting emails unopened, and the decision waits for the day you need the money, when it gets made under pressure. Keep one table, and you always know how much there is, how it's taxed, and which company it leans on. Capital gains tax on an ordinary holding, outside employee shares, is covered separately.

The next email with "Vested" in the subject won't end with a click on close. It becomes a new row in a table you already know.

This week: build the tranche table on paper from the trustee's system, and add one line at the bottom: "What percentage of our net worth is this?" Take the net worth from AlphaHome and add the share value from the page, since the shares aren't recorded there.