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.


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 Shouldn’t you be talking to your tax return preparer about this?

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

Comments are closed.