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There are many reasons to want to work at Amazon and the way it supports its employees and their families from the day you first start working is one reason.
Amazon provides great benefits for all employees working between 20 - 40 hours a week. While actual benefits may vary by position and negotiated compensation, Amazon protects its employees’ financial well being by providing great financial benefits including Amazon restricted stock unit (RSU) shares and a 401(k) plan.
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What is an Amazon RSU?
An Amazon RSU is the right to receive a share or payout at a future date or subject, to some performance condition. It is gifted by Amazon at the start of your employment. For reference, one RSU equals one share of stock once you become vested.
You receive your shares upon being hired, but they aren’t worth anything just yet. You’ll receive a vesting schedule based on your compensation. Your plan documents tell you the exact number of RSUs you’ll receive and how you may earn additional units.
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Things You Need to Know About Amazon Restricted Stock Units
As we said above, Amazon Restricted Stock Units are a part of your compensation, but they aren’t worth anything until you’re vested. Once you’re vested, though, you’re free to do what you want with the stock.
Each unit is worth the current price of an Amazon share on the date that you become vested. However, Amazon RSUs create a tax liability when you become vested. You’ll pay taxes as you would on your ordinary income at that time.
Other things to know about Amazon RSUs are:
Make sure you understand what happens to your RSUs if you take parental leave
Your RSUs don’t expire
You’ll lose vesting if you leave Amazon before you’re fully vested
You may have specific trading windows to trade the stock once you’re vested to prevent insider trading
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Amazon RSU Vesting Schedule
Most companies operate on a 25-25-25 vesting schedule, but Amazon RSUs are on a different schedule. Amazon is on the 5-15-40-40 schedule.
For example, if you are promised 200 shares of Amazon, you’d receive 10 shares on the 15th of the month of your first anniversary, 30 shares on the 15th of the month of your second anniversary, 80 shares six months later, and the final 80 shares in another 6 months.
This means your tax liabilities are much higher in years 3 and 4, so prepare your finances accordingly or get with your tax advisor.
Amazon Employee Stock Options
In a move to increase its minimum wage, Amazon revamped its compensation plan, which no longer included Amazon employee stock options, and after 2019, with RSUs vesting in 2020 and 2021, Amazon is replacing the program with a Direct Stock Purchase Program.
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Understanding Your Tax Impacts as an Amazon Employee
Generally, RSUs are awarded at no cost without a Section 83(b) election.
Tip: A section 83(b) Election is an IRC provision that allows employees to pay ordinary income taxes on the total fair market value of the restricted stock at the time of granting rather than the time of vesting.
As you can see in the graphic, you are given the shares at no cost. However, once you are vested, it triggers a tax liability and you will pay ordinary income taxes on the amount of gain between fair market value (FMV) at grant and FMV at vesting. Even if Amazon typically withholds 22 percent of the value for taxes, for some (depending on your tax bracket), this may not be enough, so be prepared for a higher tax liability in the higher vested years.
Additionally, when you go to sell the shares, you will pay capital gains taxes for the amount of gain between FMV at vesting and FMV at the sale. Capital gains taxes will vary depending on how long you’ve held the stock, your taxable income, and your filing status. f you sell the stocks right away once vested, you’ll pay ordinary capital gains taxes. If you hold onto the stock for longer than a year, you’ll pay long-term capital gains taxes. So, it’s important to prepare yourself for the liability.
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Understanding Your Amazon Employer Plan
Amazon 401(k) Plan
Your 401K contributions also have tax liabilities, depending on how you invest. If you choose a standard 401K, Amazon invests your funds pre-tax (before taxes). You get the benefit of a lower tax liability now, which means a slightly higher paycheck. You owe taxes on the contributions and earnings when you withdraw them during retirement. You’ll pay your current tax bracket at the time that you withdraw the funds.
You may also choose a Roth 401K, which means after-tax contributions. You pay standard taxes on your paycheck and the 401K withdrawals are made after taxes. Your contributions and earnings grow tax-free in this account. You can withdraw the funds without a tax liability during retirement, as long as you wait until you’re 59 ½ years old.
Amazon 401(k) Match
Amazon helps employees plan for the future by contributing to their 401K. Eligible employees receive $0.50 for every $1 they contribute to their retirement account. Amazon matches contributions totalling up to 4 percent of its employees’ salaries - Amazon contributes a maximum of 2 percent.
Amazon doesn’t match catch-up contributions for those over 50-years old and the employee match is in Amazon stock. You are free to do what you want with the match, whether you stay invested in the company stock or you diversify your portfolio more to reduce its risk.
Employees aren’t immediately vested in their matching contributions, though. You must have at least 3 years of vesting service. Each year that you work 1,000 hours or more is a vested year. Once you work three of these years, you’re vested, and can keep the matching contributions.
Employees may contribute up to $19,500 (the 2020 limit for 401K and Roth 401K), or between 1 percent and 90 percent of their eligible pay. Employees may make pre-tax contributions (regular 401K) or after-tax contributions (Roth IRA). The $19,500 limit is a combination of both accounts (if you have both).
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Amazon's RSUs and 401(k) Plan Sweeten the Compensation Deal
As you look at your employment options, think of the benefits Amazon RSUs offer. Even if you have a slightly lower salary, the ability to own shares of Amazon stock upon becoming vested is a large benefit, especially given its high stock price today.
While there’s no guarantee where the Amazon stock prices will be when you become vested, chances are pretty good that it will still be a nice benefit that will help you in your financial future.