Is restricted stock taxable income?

The general rule for property received for services

The Restricted Property section of Publication 525 begins with the ordinary rule: if you receive property for your services, you include its fair market value (FMV) in income in the year you receive it. The exception is restricted property. If the stock or other property is nontransferable or subject to a substantial risk of forfeiture, you do not include its value until the property becomes substantially vested. Until then the property is owned by the person who made the transfer, usually your employer, but any income from the property, or from the right to use it, is included in your income as additional compensation when you receive the income or have the right to use the property.

What counts as substantially vested

Property is substantially vested when it is transferable, or when it is not subject to a substantial risk of forfeiture, meaning you no longer may be required to return it. Property is transferable if you can sell, assign or pledge your interest to anyone other than the transferor, and the person receiving your interest is not required to give up the property or its value if the forfeiture risk occurs. A substantial risk of forfeiture generally exists only if rights in the property are conditioned, directly or indirectly, on the future performance (or refraining from performance) of substantial services by any person, or on a condition related to a purpose of the transfer where the possibility of forfeiture is substantial.

Example 13 in the publication: a corporation sells you 100 shares as compensation for $100 a share, and you must resell the shares at $100 if you leave your job within three years. Because you must perform substantial services and must resell regardless of value, your rights are subject to a substantial risk of forfeiture.

Income at vesting: Example 12

When the property becomes substantially vested, you include its FMV, minus any amount you paid for it, in income for that year, and your holding period begins at vesting. In Example 12, your employer sells you 100 shares at $10 a share when the FMV is $100 a share, with a five-year forfeiture risk. You include nothing in the year you buy. At the end of five years the FMV is $200 a share, so you include $19,000 in income [100 shares x ($200 - $10)]. Dividends paid on the shares during the forfeiture period are taxable to you as additional compensation.

Choosing to include the value at transfer

You can choose to include the value of restricted property at transfer, minus any amount paid, in income for the year of transfer. If you do, the substantial vesting rules do not apply and generally any later appreciation is not included in compensation when the property vests. Your basis for gain or loss on a later sale is what you paid plus the amount included in income. The choice cannot be revoked without IRS consent, given only if you were under a mistake of fact about the underlying transaction. If you forfeit the property after including its value, your loss is the amount you paid minus any amount you realized on the forfeiture.

You make the choice with a written statement or Form 15620 filed with the IRS Service Center where you file your return, no later than 30 days after the date of transfer, under section 83(b) of the Internal Revenue Code. The statement must give your name, address and TIN; a description of the property; the transfer date and tax year; the restrictions; the FMV at transfer (ignoring restrictions that will never lapse); any amount you paid; and a statement that copies went to the appropriate persons, including the person for whom you performed the services. The choice cannot be made for a statutory or nonstatutory stock option.

Dividends on restricted stock

Dividends on restricted stock are treated as compensation, not dividend income, and your employer should include them on your Form W-2. If they also appear on a Form 1099-DIV, list them on Schedule B (Form 1040) with a statement that you included them as wages, and leave them out of total dividends. If you chose to include the stock in income in the year transferred, the dividends are ordinary dividends, reported from Form 1099-DIV, and not part of wages.

Selling before vesting

If you did not make the choice and you sell the property in an arm’s-length transaction before it vests, you include in income as compensation for the year of sale the amount realized minus the amount you paid. If the sale is not at arm’s length, you include the money received plus the FMV of any substantially vested property received, and you still report income when the original property vests, as if you still held it. Example 14 works through a sale to a spouse for $10 of stock that cost $50 and later vests at $120.

Limits of this page

This page is based on the Restricted Property section of Publication 525 (2025). Equity plans differ by type, and options, RSUs and employee purchase plans have their own rules; confirm the treatment of your award with the plan documents and a tax professional.

Related Publication 525 topics

More from the same IRS publication: Is bartering taxable income?, Is partnership income taxable income?, Are royalties taxable income?.

Sources

• IRS Publication 525, Taxable and Nontaxable Income (2025): the “Restricted Property” section and the sections it cross-references. Read November 2, 2026.

Edition read: Publication 525 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.