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Subject:   non-qualified stock options
Date:   Fri, 06 Jul 2001
From:   Linda

This is in regard to multi-state employers. Is there a specific tax on the state level when an employee exercises the non-qualified stock option??? For example: If an employee was granted or bought stock while he was living in New York, but didn't exercise it until 3 years later and employee was living in Pennsylvania, then is there some sort of tax imposed for the state of New York and/or Pennsylvania??

Answer

Date:   Wed, 25 Jul 2001

Hello Linda,

The exercise of non-qualified stock options results in taxable wages for state tax reporting.

The rules for options granted in New York are especially complex, but they are better defined than for most states. I’m sorry, but I can’t give you all the details in a FAQ. Does your company have a CPA firm you can consult with?

Some of the income will be taxable in New York as wages earned in New York. The income will also be taxable in Pennsylvania as income received by a Pennsylvania resident. When income is taxed by two states, there is generally a state tax credit available to eliminate the double tax.

Good luck!

Mike Gray

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.