Zakat on RSUs, Stock Options and ESPP Shares: When It Is Due and How to Value It

Zakat is generally not due on restricted stock units (RSUs) or stock options until they vest and the shares become yours. Once vested shares are in your account, they are zakatable like other shares: Britain’s National Zakat Foundation (NZF) values long-term holdings at the company’s zakatable assets, or 25 percent of market value as a proxy, and charges 2.5 percent.

Reviewed by Hafiz Maqsood Ahmed.

Equity pay is now a large part of compensation at technology companies and in finance, which means many Muslim professionals hold a significant share of their wealth in employer stock. The rules below are the published positions of named bodies; they differ, and The Halal Times does not issue rulings. The general principles are set out in our guide to zakat.

Restricted stock units

NZF says in its guidance on RSUs that “until the shares vest, they remain a promise, and no zakat is due.” After vesting, when the shares are transferred to the employee, they count toward zakatable wealth.

NZF values vested RSUs the way it values long-term shareholdings: the employee’s share of the company’s zakatable assets, such as cash, receivables and inventory. If that cannot be determined, NZF allows a proxy of 25 percent of market value, which works out to 0.625 percent of the holding (2.5 percent of 25 percent). NZF applies this even if the employee plans to sell later, because the shares were not bought for trading.

Many employers withhold shares at vesting to cover income tax. Only the shares actually delivered to the employee are owned and counted.

Stock options

The Assembly of Muslim Jurists of America (AMJA) addressed employee stock options in a 2010 fatwa by Dr. Main Khalid Al-Qudah. “The Zakah is not due on the market value of these stocks, but only on the profit/revenue those stocks make for you,” the fatwa says, and if the options cannot be sold, their market value is not subject to zakat “until you sell them and got the money.”

In practice, that means:

• Unvested options: no zakat; they are not yet owned.
• Vested but unexercised options: under AMJA’s fatwa, no zakat on their market value while they cannot be sold.
• Exercised options: the shares become ordinary shareholdings, and cash from a sale joins your cash savings on your zakat date.

Employee stock purchase plans (ESPP)

Shares bought through an employee stock purchase plan are owned outright once the purchase completes, so the general rules for shares apply. NZF distinguishes between shares bought to resell, which it says are zakatable at 2.5 percent of market value, and shares held for the long term, for which it uses the zakatable-assets method or the 25 percent proxy. Many ESPP participants sell shortly after each purchase to lock in the discount, which places those shares in the resale category. Money withheld from salary but not yet used to buy shares is still cash and counts on your zakat date.

How other scholars treat long-term shares

Views differ on long-term shareholdings generally. The International Islamic Fiqh Academy ruled in Resolution No. 121 (3/13), adopted in Kuwait in 2001, that an investor should pay on his pro-rata share of the company’s zakatable assets if the company has not paid zakat. AMJA has issued fatwas holding that zakat on shares held for long-term savings falls on dividends and profits rather than market value. Our explainer on zakat on stocks and shares compares these methods.

A worked example

An engineer has 400 vested RSUs worth $150 each, or $60,000, plus 1,000 unvested RSUs and $20,000 in cash.

• Unvested RSUs: not counted.
• Vested RSUs under NZF’s proxy: 25 percent of $60,000 is $15,000.
• Cash: $20,000.
• Zakatable total: $35,000, well above the nisab. Zakat at 2.5 percent: $875.

Valuing the vested shares at full market value instead, as some do for shares they intend to sell, would raise the zakat to $2,000.

Retirement plans holding company stock

Company shares held inside a 401(k) follow the rules for retirement accounts, where access restrictions and penalties change the calculation. Our 401(k) zakat calculation guide covers those cases.