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Luca CM Melchionna, Esq., Managing member Luca CM Melchionna has 25+ years of experience in both private practice and academia, in Italy and in the United States. He is a...
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Mission and Values
Mission Melchionna PLLC is an indipendent law firm. Melchionna PLLC’s mission is to provide outstanding legal services and tax advice. We focus on building a relationship with...
About us
Melchionna PLLC, a law firm with a focus on business, corporate, tax, and IP law.
About us Melchionna PLLC represents and assists North American and European business clients in achieving their goals with sound legal advice and innovative solutions to current...
M&A and corporate law
Section 83(b) Election
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M&A and corporate law
FIRRMA, Foreign Investment Risk Review Modernization Act: Investing in the USA Will Become More Difficult in Key Sectors
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M&A and corporate law
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M&A and corporate law
Quadro Economico USA – il mercato delle M&A e’ in ripresa per le aziende medio piccole
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Section 83(b) Election
Restricted stocks conferred to employees, that is stocks that employees can transfer after vesting, are subject to certain tax rules that distinguish them from granted or fully vested stocks. The shareholder can, in fact, choose to either subject his or her shares to taxation at the time of vesting or at the time the shares are granted to him/her.
Under Section 83(b) election, the owner of granted, not vested, shares can elect to be taxed at his/her ordinary income within 30 days of granting.
The advantage of the election is that it benefits from the differential between ordinary income taxation and capital gains taxation. The ordinary income taxation (recently adjusted in the 2018 tax cuts) stands at 37% at their highest rate. On the other hand, the long-term capital gains tax ranges from a minimum of zero to a maximum of 20%, depending on the applicable tax rate.
If the shareholder of restricted stock chooses the 83(b) election, the taxation structure will be as follows: (1) upon granting, based on the value of the stock (at the ordinary rate), and (2) upon transfer (at the marginal capital gain rate). Without the election, the taxation will take place at vesting. As a result, if the value of the shares upon granting is nominal, the election will show its advantages.
Given the scenario, employers may want to alternatively consider granting stock options.
The information provided here does not, and is not intended to, constitute legal advice but simply information for general purposes only and may not be the most up to date. Use of our website or any of its links or resources do not create an attorney-client relationship between the reader, user, or browser and the law firm. The views expressed at, or through, this site are those of the individual authors writing in their individual capacities only.