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Date:   Tue, 14 Mar 2006
From:   Penny

If an employee is granted stock options by a corporation headquartered in Maryland and he lives in South Dakota, where is the income taxed?

Answer

Date:   Sat, 18 Mar 2006

Hello Penny,

This is becoming a big issue because of people telecommuting. I can't get into the nuances here. As a resident of South Dakota, the income is certainly taxable in South Dakota. It could be taxable in Maryland, with an offsetting state tax credit to South Dakota. Income is usually taxable in the state where the services are provided. Your best clue is, where are your wages being taxed?

Many companies have satellite locations in various states, and the wages are usually taxed in the state where the employee is working in a corporate office. With multinational corporations, the issue becomes even more complex.

That's all I can tell you with a "free" answer. For more help, pay a tax consultant.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

For more information about non-qualified stock options, request our free report, Non-Qualified Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.