Understanding the RSU and 83b Election

Restricted Stock Units (RSUs) are a form of employee compensation that often comes with specific tax considerations. One of the key decisions employees face when receiving RSUs is whether to file a 83b election. This article will explore whether a company can force an employee to file a 83b election and what the implications of such a decision might be.

Can My Company Force Me to File an 83b Election?

It is important to understand that your company cannot force you to file an 83b election for your Restricted Stock Units (RSUs). The 83b election is an optional tax filing that allows employees to report the receipt of RSUs as income at the time of grant, rather than when the RSUs vest. This election is typically associated more with restricted stock, though the rules and implications can overlap.

RSUs are taxed as ordinary income when they vest, meaning you will pay taxes on the fair market value of the shares at that time. An 83b election enables you to pay taxes on the fair market value of the shares at the time of grant. This can be beneficial, especially if the stock is expected to appreciate significantly. However, the decision ultimately lies with the employee as the tax liability and implications may vary based on individual circumstances.

RSUs vs Options: Choosing the Right Path

When deciding between RSUs and stock options, the choice often depends on the strike price and the expected performance of the stock. Your company gave you the option to choose between receiving RSUs or stock options. You mentioned that the RSU option includes a requirement to file an 83b election. Additionally, the stock’s strike price for the option is unusually low at 3 cents, while the expected price at vesting is much higher, between 80 cents and 1 dollar.

Should I File the 83b Election?

Filing an 83b election is a significant decision, and it is always recommended to seek professional advice. Here are some points to consider:

Tax Implications: Filing an 83b election means that you will pay taxes on the fair market value of the RSUs at the time of grant rather than waiting until they vest. If the stock price increases significantly, filing an 83b election could result in a substantial tax liability. Financial Planning: If the stock price does not meet expectations, filing an 83b election could result in a tax loss that is not deductible for capital gains purposes. Understanding your financial situation is crucial. Tax Consulting: It is advisable to speak with a tax professional or financial advisor who can provide personalized advice based on your specific situation, including the potential increase in stock price and your current financial health.

Conclusion

The decision to file an 83b election for RSUs is not one that your employer can force upon you. It is a complex decision that depends on various factors, including the expected performance of the stock, your current financial situation, and the potential tax implications. Consulting with a tax professional or financial advisor can provide valuable insights to help you make the best decision for your personal circumstances.

FAQs

Q: Can my company force me to file an 83b election?
A: No, your company cannot force you to file an 83b election for RSUs. Q: What are the benefits of filing an 83b election?
A: Filing an 83b election can be beneficial if the stock price is expected to appreciate significantly, as you would pay taxes on the lower grant price rather than the higher vesting price. Q: Is a low strike price advantageous?
A: A low strike price can be advantageous, but it is important to consider the expected performance of the stock. Consulting with a professional is recommended to make an informed decision.