Restricted stock plan

A restricted stock option is a type of stock option plan in which the transferred shares are subject to restrictions on transferability and a substantial risk of forfeiture. Employees do not immediately gain full ownership or control over the stock. Instead, they must include the value of the restricted stock in their gross income in the first taxable year when the rights to the stock become transferable or are no longer subject to forfeiture.

Example: An employee receives restricted stock that vests after three years of continued employment. The employee will recognize taxable income in the year the stock vests, as it becomes transferable and no longer at risk of forfeiture.