Is there a rule for federal income tax withholding for ISOs?

February 14, 2005

Subject:   ISO Federal Taxes
Date:   Fri, 04 Feb 2005
From:   Angela

Good day,

Is there a general rule for federal income tax withholding for ISOs exercised and sold for cash at the same time? Do you use the W-4 rate or the rate that applies for bonuses?



Date:   Wed, 09 Feb 2005

Hello Angela,

No federal income tax withholding is required for the disqualifying disposition of ISO shares. Section 251(a)(1) of the American Jobs Creation Act of 2004 “officially” repealed the withholding requirement, which was previously suspended by the IRS.

Good luck!

Mike Gray

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