In addition to cash payments, many of those who work for a technology start-up company receive some form of equity-linked compensation that often has the earnings potential much larger than the actual compensation received.
RESTRICTED STOCK. It is the stock issued to a service provider without the right to sell it until certain vesting conditions, usually a vesting period, are met. For U.S. persons, it is usually recommended to make the 83(b) election. The election prevents the ordinary income inclusion by the service provider as the stock vests and the value of the company grows. Without the money to pay the tax, such an outcome is quite onerous for the start-up team member. Instead, the tax on the value growth is levied only when the stock is actually sold.
STOCK OPTIONS are financial instruments that allow its owner to purchase the stock at a previously set price. There are a number of types of stock options, as described below, and each is taxed under varying rules.