Is withholding required for non-employees with stock options?
January 18, 2006
Date: Fri, 09 Dec 2005
From: Linda
What taxes are required to be withheld for an individual who exercises a non-qualified stock option who is not a company employee? This individual is a member of our board of directors and is not a resident of California.
Please advise. Thanks.
Answer
Date: Fri, 09 Dec 2005
Hello Linda,
Since the individual is not an employee, his or her income is not subject to withholding taxes or employment taxes that apply to employees.
California requires 7% income tax withholding for non-employee earned compensation paid to an individual who is not a resident of California. See FTB Publication 1023 and FTB Forms 587, 590, 592, 592-A, and 592-B. The web site for the Franchise Tax Board is www.ftb.ca.gov. Shouldn’t you be talking to your tax return preparer about this?
Good luck!
Mike Gray