What Are the Tax Implications of Token Vesting for Team Members?

The tax implications of token vesting are complex and vary by jurisdiction. Generally, in the US, tokens are often taxed as ordinary income upon vesting (when the tokens become transferable) based on their fair market value at that time.

This can lead to a significant tax bill even if the tokens are not immediately sold. Team members may also face capital gains tax when they eventually sell the tokens.

Early tax elections, like an 83(b) election, can sometimes be used to mitigate this 'taxable upon vesting' issue.