Whether you receive dividends on unvested shares comes down to which kind of equity award you hold. If you have a restricted stock award (RSA), actual shares are issued in your name at grant, you are the shareholder of record, and dividends flow to you the same way they do for any other shareholder. If you hold restricted stock units (RSUs), no shares have been issued yet, so you get nothing unless your plan includes dividend equivalent rights. And whichever payments you do receive during the vesting period are generally taxed as wages, not as investment income, until the shares fully vest.
Restricted Stock Awards Make You a Shareholder Right Away
When your employer grants an RSA, the shares are issued in your name on the grant date. You cannot sell or transfer them until the vesting restrictions lapse, but the transfer agent still has you on the books as the owner. That means you can vote the shares and, when a dividend record date arrives, you collect the dividend along with everyone else on the register.
Forfeiture risk does not change this. The restrictions limit what you can do with the stock itself; they do not strip your right to participate in corporate distributions while you hold it.
RSUs Do Not Pay Dividends Unless the Plan Says So
RSUs work on a different structure. An RSU is a contractual promise to deliver shares (or their cash equivalent) at a future date once vesting conditions are met. No shares exist in your name during the vesting period, so you have no voting rights and no legal claim to any dividend the company pays.
Many employers close that gap by writing dividend equivalent rights (DERs) into the equity plan. A DER credits your account with an amount equal to the dividend that would have been paid on each RSU if it were an actual share. Some plans pay DERs in cash. Others reinvest them as additional phantom units that vest alongside the original grant. Not every RSU plan includes DERs, and if your grant agreement is silent, assume you receive nothing until the shares actually vest and land in your brokerage account.
When the Money Actually Reaches You
For both RSA dividends and RSU dividend equivalents, the grant agreement decides when you see the cash. Two structures dominate.
- Current payment. The cash value reaches you shortly after the company pays its regular shareholder dividend. You get liquidity right away. If you later forfeit the award, you keep what was already paid, but you have already been taxed on it.
- Deferred payment. The company holds accumulated credits in an internal account until the vesting conditions are met. If the award vests, you receive a lump-sum payout of everything that accrued. If you forfeit the award, the accrued amounts disappear with it.
Whether deferred amounts earn interest or get reinvested into additional units is entirely a plan-drafting choice. Some agreements state that deferred dividend credits are held “without interest.” Others let the compensation committee credit interest or reinvest the balance into additional notional shares at fair market value. That difference can meaningfully change the total payout at vesting, so the plan terms are worth reading closely.
How These Payments Are Taxed
This is where most people get tripped up. Dividends paid on unvested shares are generally not taxed as dividends. The IRS treats them as compensation for services and taxes them at ordinary income rates. The payments are reported on your Form W-2, not on a 1099-DIV, because the shares have not yet vested and no completed property transfer has occurred under the tax code.
Ordinary rates can reach 37% at the federal level for income above $640,600 in 2026.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 20262Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates3Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security Once your total wages for the year exceed $200,000, an additional 0.9% Medicare surtax applies to everything above that threshold, and your employer is required to withhold it automatically.4Internal Revenue Service. Publication 926, Household Employer’s Tax Guide
For federal income tax withholding, employers typically apply the flat supplemental wage rate of 22%. If your supplemental wages exceed $1 million during the calendar year, the rate on the excess jumps to 37%.5Internal Revenue Service. Publication 15 (2026), Employer’s Tax Guide Employees with large equity grants often land above the flat rate they actually owe, so running the numbers against your real marginal rate is worth the effort at tax time.
How an 83(b) Election Changes the Picture
If you hold an RSA (not RSUs), you can file a Section 83(b) election within 30 days of the grant date.6Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services The election tells the IRS you want to recognize the full fair market value of the unvested shares as income immediately, rather than waiting until vesting. That accelerates your tax bill on the grant itself, but it also changes how every dividend paid during the vesting period is taxed.
With a valid 83(b) in place, dividends on those shares are treated the same as dividends on any other stock you own. They are reported on Form 1099-DIV rather than your W-2 and are no longer classified as compensation.7Internal Revenue Service. Publication 525, Taxable and Nontaxable Income If the holding period requirements for qualified dividends are met, the payments are taxed at the preferential rates of 0%, 15%, or 20% depending on your income, rather than at ordinary rates up to 37%.
The gamble is that if you forfeit the shares before vesting, you do not get back the tax you already paid on the grant-date value, and the tax code allows no deduction for the forfeiture.6Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services The 30-day deadline is also strict. Miss it, and the option is gone for that grant. The election is not available for RSUs at all because RSUs are not a transfer of property at grant.
What Happens If You Leave Before Vesting
If you leave the company before your shares vest, you typically lose both the unvested equity and any accumulated dividend equivalent credits sitting in a deferred account. Voluntary resignations and terminations for cause almost always result in full cancellation of unvested awards. The dividend equivalents do not survive the forfeiture of the underlying grant, because they were always conditioned on the same vesting requirements.
Current-payment dividends you already received are yours to keep. You were taxed on them when they hit your account, and forfeiting the underlying shares does not create a clawback or a deduction.
The Section 409A Trap for Deferred Dividend Equivalents
Deferred dividend equivalents can create a serious tax problem if the plan is not structured correctly under Section 409A. When credits are accumulated and paid at a later date, the arrangement may constitute deferred compensation, and the plan must comply with strict rules about when and how payments are triggered.
Permissible payment events under Section 409A are limited to separation from service, disability, death, a fixed date or schedule specified in the plan, a qualifying change in corporate control, or an unforeseeable emergency. If the plan allows payment outside those categories, or if the initial deferral election was not made on time, the entire deferred amount becomes immediately taxable, plus a 20% additional tax and interest calculated at the underpayment rate plus one percentage point, running back to when the compensation was first deferred or no longer subject to forfeiture.8Office of the Law Revision Counsel. 26 USC 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans
The drafting burden falls primarily on the employer, but the penalty lands on you. If your grant agreement includes deferred dividend equivalents and you are not sure the plan satisfies 409A, raise it with your company’s equity compensation team or a tax advisor before the deferral period begins.
A Note for Nonresident Alien Employees
If you are a nonresident alien working for a U.S. employer, dividend equivalent payments face a default federal withholding rate of 30% under the general nonresident withholding rules.9Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens A tax treaty between the U.S. and your home country may reduce that rate, sometimes significantly, as long as you have filed the required documentation with payroll. Check the withholding on your pay statement. Overpayments at the default rate are recoverable by filing a U.S. tax return, but the refund process can take months.