Sale of Restricted Stock reported on a 1099-MISC?

Forum|Forum|4 years ago
March 4, 2022
3 replies
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My client sold some restricted stock in 2021, for which he had filed an 83b and paid the tax at the time of exercise in 2016. His employer reported the 2021 sales to him on a 1099-MISC form, though? Has anyone heard of this?

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qbteachmt

Level 15

"The 83(b) election is a provision under the Internal Revenue Code (IRC) that gives an employee, or startup founder, the option to pay taxes on the total fair market value of restricted stock at the time of granting. The 83(b) election applies to equity that is subject to vesting."

You cannot sell something until you own it.

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TxLaineAuthor

Level 3

The shares sold were vested. Doesn't that mean the TP owned them, and that the sale is capital gains income, not "Other Income"?

sjrcpa

Level 15

Depending on the type of stock plan, the employee may not have held the shares long enough to qualify for capital gain treatment. It could be Ordinary Income. But a 1099-MISC presentation is odd.

The more I know the more I don’t know.

qbteachmt

Level 15

I really like Investopedia articles. See if these two help:

https://www.investopedia.com/articles/financial-advisors/110915/restricted-stock-units-what-know.asp

https://www.investopedia.com/terms/r/restricted-stock-unit.asp

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qbteachmt

Level 15

I have a pretend example that I think, simplified, might help:

I hire you and include the promise of shares as part of your compensation package. For retention, you get Granted in the second year, and Vested in each round of granted shares, 2 years after the grant date. The value of the grant is reportable and taxed on the W2 each time. The shares are not yours to do whatever you want with, until they Vest. You decide to sell them each as they Vest, right away. That would be Ordinary income, not Gain.

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TxLaineAuthor

Level 3

So, if they did vest in 2016, though, they would be capital gains, right?

sjrcpa

Level 15

Yes

The more I know the more I don’t know.

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