Depending on the type of award you have, you may receive dividends or dividend equivalents for your unvested shares. A dividend is a sum of money paid on the stock you own. If you have RSAs, you are usually entitled to the dividend payouts from your shares, even if they are unvested. If you have RSUs or other types of restricted awards, you are not entitled to the dividends, but your plan may still give you a payout that is the “equivalent” of what you would have received on the unvested shares.
When dividend equivalents are paid at vesting through additional shares or cash, withholding applies at that time, they are reported as part of your ordinary W-2 compensation income. With nonemployees, such as directors and independent contractors, this income is reported on Form 1099-NEC.
Should a cash dividend payout occur before vesting, this compensation income will be taxed, and withholding applies at the time of payout.