What are the penalties for not withholding tax at the time of exercise?
July 20, 2001
I actually have two questions:
I have exercise some NQ options from my company in May and no tax was deducted. I kept the stocks and now I am facing the following:
I have a significant tax return to pay to the IRS, which mean that I will have to sell my stocks to pay for this return:
- since the price of the stocks have decline from $59 at the time of the exerise to $32 today, I assume that I will be able to declare a capital gain loss for my return in 2002,
- what are the penalties associated with the fact that no tax withholding was done at the time of the exercise.
Thank you for your response, I may need more help …
Date: 9 Feb 2001
- Yes, if you sell the stock for less than the fair market value on the exercise date, you will report a capital loss for the year of sale.
- Depending on your gross income and tax on your 1999 income tax returns and the amount of your withholding, there may be a minimal or no penalty. I suggest you refer to federal Form 2210 and the instructions for that form, and the equivalent for your state.