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Date:   Thu, 7 Jun 2001
From:   Mary

What taxes are due on ISO same-day exercise/sale? My company's "model" for calculating taxes includes Social Security, SDI, etc. I thought ISO sales were only subject to Federal Income Tax (with possible AMT) and State Income Tax. Your help appreciated. Thanks.

Answer

Date:   Mon, 9 Jul 2001

Hello Mary,

The IRS issued an announcement early this year that they won’t impose penalties on employers who do not withhold taxes or pay employment taxes with respect to early dispositions of ISO stock. This suspension of penalties is effective for options exercised before January 1, 2003.

In other words, no withholding or employment taxes apply.

Tell your employer to refer to Treasury Notice 2001-14.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive 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.