Holloway Guide ToEquity Compensation

Tax Comparison Table

Common questions covered here
How are different types of equity compensation taxed?
How can I compare the ways equity compensation is taxed?
Are all types of equity compensation taxed the same?
What are the essential differences in how types of equity compensation are taxed?

Table: Comparing Taxes on Types of Equity Compensation

This table is a summary of the differences in taxation on types of equity compensation.

Restricted stock awardsISOsNSOsRSUs
Tax at grantIf 83(b) election filed, ordinary tax on FMV. None otherwise.No tax if granted at FMV.No tax if granted at FMV.No tax.
Tax at vestingNone if 83(b) election filed. Ordinary tax on FMV of vested portion otherwise.No tax if granted at FMV.No tax if granted at FMV.Ordinary tax on current share value.
Tax at exerciseAMT tax event on the bargain element. No ordinary or capital gains or employment tax.Ordinary tax on the bargain element. Income and employment tax.
Tax at saleLong-term capital gains tax on gain if held for 1 year past when taken into income. Ordinary tax otherwise (including immediate sale).Long-term capital gains if held for 1 year past exercise and 2 years past grant date. Ordinary tax otherwise (including immediate sale).Long-term capital gains if held for 1 year past exercise. Ordinary tax otherwise (including immediate sale).Long-term capital gains tax on gain if held for 1 year past vesting. Ordinary tax otherwise (including immediate sale).

Tax Dangers

Because they are so important, we list some costly errors to watch out for when it comes to taxes on equity compensation:

  • danger If you are going to file an 83(b) election, it must be within 30 days of stock grant or option exercise. Often, law firms will take a while to send you papers, so you might only have a week or two. If you miss this window, it could potentially have giant tax consequences, and is essentially an irrevocable mistake—it’s one deadline the IRS won’t extend. When you file, get documentation from the post office as well as a delivery confirmation, and include a self-addressed, stamped envelope for the IRS to send you a return receipt. (Some people are so concerned about this they even ask a friend to go with them to the post office as a witness!)

  • danger Watch out for the AMT trap we’ve already discussed.

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Length: 80 pages
Edition: e2.1.0
Last Updated: 2021-02-19
Language: English
ISBN (Holloway.com):
978-1-952120-03-9

Equity Compensation

by Joshua LevyJoe Wallin
Stock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.

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