Taxes on Stock Option Premiums

TAX TREATMENT OF STOCK OPTIONS. UNITED STATES. EMPLOYEE: EMPLOYER. SALE OF SHARES. Generally, the United States will have the right to tax the income if there is a link between the shares which the employee has received and the work of the employee performed in the United States. The United States.

David Bowen Principal Grant Thornton.

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Background Rules for Taxation of Stock Options. A “non-statutory stock option” is different from what is called a “statutory” stock option.

Contact us at David Bowen Principal Grant Thornton. George Manousos Partner PricewaterhouseCoopers. Michael Press President Scout Economics. Tammy Propst President taxadvantagegroup.

Conducted on Thursday, October 16, Purchase Options or call Tom Geppel Partner, Employment Tax Services Group PricewaterhouseCoopers He had more than 18 years of experience in federal and state employment taxes and led an initiative on non-resident Angelina Johnson-Brown General Electric Company The program had excellent presenters that were extremely knowledgeable.

Volland Legacy Professionals It was an excellent program!! An individual who receives such an option is not subject to tax on compensation income when the option is granted or exercised. When the recipient sells the shares, the recipient will be taxed at long-term capital gain rates on the gain, assuming a qualifying sale. In contrast, the recipient of a nonstatutory stock option "NQSO" is taxed on compensation income in the year the option is exercised.

The taxable compensation is an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise. After an NQSO is exercised and the stock is acquired, the stock is treated for tax purposes as an investment by the employee.

If the stock appreciates after the date of exercise, the employee can sell the stock and will pay tax on the resulting capital gain. Nonresidents who hold NQSOs and move to the United States are taxable on the full amount of option income if the options are exercised while they are U.

If an individual who is not a U. Such an individual may, however, be subject to U. Allocation of option income between United States and foreign sources may be based on the number of days the individual worked in the United States compared with the number of days that the individual worked outside of the United States during the relevant period.

It is important for an international executive to keep a careful record of where he or she is on a daily basis and whether each day is a working day or a non-working day. It is also important for employers to comply with the U. They apply to both foreign and U. The taxable event, and therefore the time of taxation, may not be the same or tax credits may not be available.

For example, if a U. If Foreign Country does not tax the option income until the U. The potential benefits of foreign tax credits could be lost.

The fair market value of stock options in a U. If the individual is a U. An individual who is not a U. Options to acquire stock in a U. There may be mismatches of taxation for an individual and his or her estate as a result. Before adopting a stock option plan, an employer should consider the tax implications for all employees. Plans can be designed to accommodate the needs of both international companies and their international executives.

Individuals who receive stock options should consider the possible U.