how restricted stocks are taxed
the taxing of restricted stock is governed by section 1244 of the irc generally restricted stocks are taxable once the vesting schedule is over in addition restricted stocks are taxed as ordinary income in the year they vest this differs from stock options which are taxed when employees exercise their options not when vested 2the amount of declared income for the restricted stock for the internal revenue service is the stock s fair market value on the vesting date minus its original exercise price however the restricted stockholder can elect to use irc section 83 b which permits using the price on the grant date not the vesting date for calculating ordinary income tax the tax bill must be paid sooner in this case but it can be substantially lower if the stock had appreciated between the grant date and the vesting date the risk is that if the restricted stockholder leaves the company before the shares vest the shares are forfeited and taxes that were already paid are nonrefundable 