Consider the Sec. 83(b) Election to Save tax on Restricted Stock Awards

Restricted stock is stock that’s granted subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes on the stock’s fair market value at your ordinary-income rate.

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, can be beneficial if the stock is likely to appreciate significantly. Why? Because it allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

There are some potential disadvantages, however:

  • You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax.
  • Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value.

Consider the Sec. 83(b) Election to Save tax on Restricted Stock Awards

If you’ve recently been awarded restricted stock or expect to be awarded such stock this year, work with us to determine whether the Sec. 83(b) election is appropriate for you.

Contact us at info@ocd.com for more information.

Jenna McQuinn

About Jenna McQuinn

Jenna McQuinn is the Director of Marketing at O'Connor & Drew P.C, where she works to align the goals of the firm with consistent brand messaging. She previously worked as a Social Media and Digital Marketing Manager for several brands.



Jenna McQuinn
Author: Jenna McQuinn
Jenna McQuinn is the Director of Marketing at O'Connor & Drew P.C, where she works to align the goals of the firm with consistent brand messaging. She previously worked as a Social Media and Digital Marketing Manager for several brands.