Walmart RSUs and Taxes: Common Questions

Ownership and Equity Compensation are important parts of Walmart's culture, highlighted in 2024 by the announcement that store managers are now eligible for up to $20,000 in Restricted Stock Units (RSUs). However, understanding the tax implications of this form of compensation is often misunderstood.

In this article, we'll explore the relationship between Walmart RSUs and taxes including:

1. How are your Walmart RSUs taxed?

2. How can RSUs help to reduce your tax bill?

3. Why is there an Estimated Tax Penalty on your tax return?

4. Why were your Walmart RSUs taxed twice?
   

1.) How are Walmart RSUs taxed?

There are two important dates for RSUs: The Grant Date and Vesting Date.

Grant Date: This is when Walmart awards you a certain number of RESTRICTED stock. The stock is NOT yours, yet. There is no tax event on the Grant Date.

Vesting Date: This is when those restricted stock units are converted to actual shares of Walmart. The shares are no longer restricted, they are delivered to your Fidelity account, and you decide to hold or sell the shares.

Your taxable income is recognized on the Vesting Date when you take ownership of the shares.

For example, if 30 shares of WMT vest at $60/share, your taxable income is $1,800 (30 shares X $60) and is taxed at your Ordinary Tax Rate just like your Base Salary and MIP.

Additionally, if you hold those Walmart shares past the vesting date AND the share price appreciates, you'll owe Capital Gains Tax on the growth when you sell.

Continuing with the above example, you receive 30 shares of WMT at $60/share. You immediately have $1,800 of taxable income. Now, let's assume you hold the WMT shares for 6 months, the price rises to $65/share and then you sell the shares. You will owe an additional capital gains tax on the $5 of price appreciation per share ($65 - $60 = $5).

Tip: If your investment plan is to sell Walmart shares and diversify your portfolio, best practice is to sell soon after they vest. This way there is little time for the price to appreciate resulting in capital gains tax when you do eventually diversify. At Taurus Financial Planning, clients are typically on a schedule to sell and diversify 2-3 times per year.

2.) How can Walmart RSUs help reduce taxes?

Restricted Stock is taxed at vesting and is not eligible to be stashed away in tax advantaged accounts. So, how can RSUs be utilized to help with taxes?

By using the cash flow from the RSUs to cover living expenses, you may be able to contribute more of your base salary and MIP to tax advantaged accounts such as the 401(k), Health Savings Account (HSA) and Walmart Deferred Compensation Matching Plan (DCMP).

See the Case Study, How a Walmart VP Reduced Taxes by $100K, for more information on tax saving strategies available to Walmart Leaders.

3.) Why is there a withholding penalty on my tax return?

This will not be the case for many associates, but many Sr. Directors and Officers may have an Estimated Tax Penalty. See Box 38 on your 2023 1040 to see if you paid a penalty last year.

Here is why you may have to pay a penalty.

Your MIP and Equity Compensation (RSUs and PSUs) are categorized as supplemental income by the IRS. By default many employers, including Walmart, withhold taxes on supplemental income at 22%. If your marginal tax rate is above 22%, as is the case especially for Officers, you may be underwithholding taxes throughout the year.

Tip: To avoid the estimated tax penalty, or just have a more manageable tax liability expense in April, you can adjust your withholding through Walmart or make quarterly payments to the IRS.

See the article, Avoiding the Tax Underpayment Penalty, for more details.

4.) Why were my Walmart RSUs taxed twice?

Upon vesting, the value of the shares on the vesting date is included in your ordinary income and reported in Box 1 of your W-2. This amount becomes the cost basis of the shares since (ordinary) taxes have already been paid on it. So far, so good.

The issue arises when selling Walmart stock acquired through your Walmart RSU and PSU Plans.

Yes, you'll owe taxes on any gain above the cost basis, but form 1099-B (the tax form you receive from Fidelity) often reports the cost basis at $0. The taxpayer must report the $0 cost basis AND provide the adjusted cost basis from the Supplemental Information, which is provided with the 1099-B form, to avoid double taxation on the RSUs.

See the article, Avoid Double Taxation on Your Walmart RSUs, for more details.

Wrap-Up

Understanding the tax implications of your Walmart RSUs is important for effective financial planning. By knowing when and how RSUs are taxed, you can manage your income and possibly reduce your tax liability.

At Taurus Financial Planning, we help Walmart associates understand these nuances to make the most of their RSU compensation.

Thanks for reading,

Mark Chisenhall, CFA, MBA

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

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