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What is restricted stock and how is it taxed?

SOLVEDby TurboTax815Updated June 02, 2023

Restricted stock (not to be confused with a restricted stock unit, or RSU) is typically awarded to company directors and executives who then own the stock at the end of the vesting period.

Also called letter stock or Section 1244 stock, a restricted stock award comes with strings attached. For example, it can't be transferred and it may be forfeited if the recipient fails to meet expectations.

Unless you made an 83(b) election, don't report a restricted stock award. In fact, you won't report anything until the stock vests. However, if you have an arrangement where you receive dividends on the award prior to vesting, the dividends should be included in box 1 (wages) of your W-2.

If you did make a Section 83(b) election, your employer will report the fair market value of the award in box 1 of your W-2 and any dividends will be reported on Form 1099-DIV.

Once you're fully vested, the stock is all yours. If you sell any shares, you'll get a 1099-B from your brokerage like you would with any other stocks.

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