Evaluating Tax Options On Restricted Stock Awards

Employers have offered key employees numerous types of incentives and awards, including stock options, stock appreciation rights and cash bonuses. One common alternative provides restricted stock to attract, retain and motivate key employees. However, in order to fully enjoy the benefits of restricted stock awards, employees need to be careful with how taxes will be treated because many recipients are unaware that cash is not the sole method in which awards are taxable. For example, a Section 83(b) election is a tax election that accelerates taxes on restricted stock, but the benefit could deliver substantial overall tax savings in the future.

Taxing Dilemma

When an employer grants restricted stock to an employee, the stock is non-transferable and can be forfeited until it vests. Vesting is one of the terms of the stock and is generally based on years of service and achievement of performance goals.