Use this button to switch between dark and light mode.

Granting Equity: The Restricted Stock versus Restricted Stock Unit Conundrum

August 15, 2023 (4 min read)

A grant of restricted stock is a common type of vehicle to deliver executive compensation, intended to motivate the individual in contributing to share performance. Taxation occurs on vesting unless the executive opts, under I.R.C. Section 83(b), to elect taxation sooner. Restricted stock units (RSUs) are economically identical to restricted stock, except that they represent a promise to deliver stock (or the cash equivalent) in the future, in most cases promptly following vesting. If share delivery occurs promptly following vesting, Section 409A generally will not apply to the RSUs pursuant to Section 409A’s short-term deferral rule. See Treas. Reg. § 1.409A-1(b)(4). However, if delivery may be delayed to a later date, the RSUs must comply with Section 409A. Learn more about what to communicate to the client, to the executive, and for payroll tax, considering both FICA and income tax withholding and reporting.

Read now »

Related Content

  • Equity Compensation Types and Tax Treatment
    Review the basic types and tax treatment of equity compensation awards companies use as part of their overall compensation programs. Whether a company is privately or publicly held, many reasons favor designing compensation arrangements to feature equity compensation. Compensation tied to the value of the company creates a direct link between the company's performance and the employee's compensation.
  • Taxation of Compensatory Transfers of Property (IRC § 83)
    Discover more by reading this practice note which addresses the taxation of compensatory transfers of property under Section 83 of the Internal Revenue Code. With certain exceptions, Section 83 governs the timing of when an executive (or other service provider) must include in income property transferred to that individual in connection with their performance of services. 

Practical Guidance Updates 
Featuring the latest updates from your Practical Guidance account.    


Experience results today with practical guidance, legal research, and data-driven insights—all in one place.

Experience Lexis+