Subject: Stock plan administrator
Date: Fri, 20 May 2005
I am a brand new stock plan administrator for a company that went
public six months ago. We are having an issue with taxes and
same-day sales of ISOs. It is our policy to withhold taxes for
all employees who exercise in a same-day sale for both ISOs and
NQOs, unless the employee asks us not to for an ISO. What types
of taxes are required to be withheld?
Date: Wed, 06 Jul 2005
Your company should have a CPA firm that can answer these
questions. NQOs are subject to income tax withholding and
employment taxes (including social security, medicare and
unemployment taxes) for the excess of the fair market value of
the shares over the option price for vested shares. No
withholding or payment of employment taxes are required when
"qualified options", including ISOs and ESPPs, are exercised.
(The American Jobs Creation Act of 2004 resolved the issue of
employment taxes for qualified options.)
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.