taxability of vested stock award program

[Naveen Mohan from New York]

I have a tax situation for a tax client where I do not know where to begin. 

 

The client is a high level executive who participate in a restricted stock award program and in 2014 he had a portion of his of his stock vested and is subject to taxation. He claims that the tax rate will be 35%.   

 

My question is how and on what schedule this type of transactions reported.

 

If the client claim is correct that his tax exposure is at 35% then why this type of transaction is not classified as capital gain because 35% seems to be ordinary income tax rate.

 

Thanks for your help.

 

Naveen Mohan 

[jklcpa]

It's ordinary income taxed at the ordinary rate because it is considered compensation because the employee receives the award for their service to the company.  It should be in his W-2, subject to withholding.  Be sure to read up on how the sec 83(b ) election works.

 

This article from Grant Thornton is pretty good and explains it, including the vesting and other issues with these.

 

Or this one from Fidelity that is in a FAQ format might be an easier read that gives the highlights of how these work.

[Naveen Mohan from New York]

Judy:

 

Thanks for your help. I called the client after I got your reply. He said that he did not do 83 b because he did not want to pay all his taxes at once but he is saying that it is not showing up in his W-2.

 

Can I add it as other income?

 

thanks

 

Naveen Mohan 

[joanmcq]

restricted stock may be reported in Box 14, but otherwise get his end of year paystub.  The amount included as wages will show on there.