CASE STUDY: Stock-Based Compensation

This case study accompanies the blog, “Smart Tax Planning for your Executive Compensation Package is Critical.

Mario was about to receive some stock-based compensation from his employer, so he contacted his tax advisor to find out what the tax consequences would be. His advisor explained that the tax treatment would depend on the type of stock-based compensation. For example, Mario might be able to take advantage of the Section 83(b) election. (See “Restricted stock” at left.) Or he might be eligible for a tax break under the TCJA.

The TCJA break allows for the deferral of tax on stock-based compensation in certain circumstances. Generally, it gives taxpayers the opportunity to match the taxation of restricted stock and stock options with the timing of the sale of the stock. It’s intended for situations in which there is no ready market for the sale of the stock.

The availability of the deferral opportunity is limited, however. It generally will apply only if at least 80% of full-time employees are covered by the stock-based compensation plan.