IRS Publication 15B — Employer's Tax Guide to Fringe Benefits

the RSU (qualified stock) may elect to defer the recognition of income for up to 5 years if the corporation’s stock wasn’t readily tradable on an established securities market during any prior calendar year, if the corporation has a written plan under which not less than 80% of all U.S. employees are granted options or RSUs with the same rights and privileges to receive qualified stock, and if certain other requirements are met. An election under section 83(i) applies only for federal income tax purposes. The election has no effect on the application of social security, Medicare, and FUTA taxes. For federal income tax purposes, the employer must withhold federal income tax at 37% in the tax year that the amount deferred is included in the employee’s income. If a section 83(i) election is made for an option exercise, that option will not be considered an incentive stock option or an option granted pursuant to an employee stock purchase plan. These rules apply to stock attributable to options exercised, or RSUs settled, after December 31, 2017. For more information, see section 83(i); and Notice 2018 -97, 2018-52 I.R.B. 1062, available at IRS.gov/irb/2018-52_IRB#NOT -2018-97. Reporting requirements. For each employee, you must report in box 12 of Form W -2 using code GG the amount included in income in the calendar year from qualified equity grants under section 83(i). You must also report in box 12 using code HH the total amount of income deferred under section 83(i) determined as of the close of the calendar year.

More information. For more information about employee stock options, see sections 83, 421, 422, and 423 of the Internal Revenue Code and their related regulations.