Overview: The fair market value of vested, unrestricted stock provided to employees as compensation, less any amount the employees pay for the stock, is subject to federal income (FIT) and FICA (Social Security and Medicare) tax withholding and federal unemployment insurance (FUTA) tax in the first year employees' beneficial interest in the stock may be transferred. The same rule applies to stock that is subject to a restriction that will never lapse. The fair market value of stock, less any amount employees pay for the stock, that is subject to a substantial risk of forfeiture is subject to FIT and FICA tax withholding and FUTA tax when the restriction lapses.
A stock option is a right or privilege extended to employees to buy company stock at the price described in the option. Employees do this by exercising their options. In general, employees do not have taxable income when they receive options.
Qualified stock options - incentive stock options (ISOs) and stock purchased through employee stock purchase plans (ESPPs) - are subject to favorable tax rules; non-statutory options (NSOs) do not have favorable tax rules. Options that were granted as ISOs and ESPPs, but that fail to qualify as ISOs or ESPPs, are treated as NSOs.
Trends: Under proposed regulations that the Internal Revenue Service (IRS) has stated that employers may rely on until finalized, the IRS has clarified the substantial risk of forfeiture conditions for stock transfers made on or after January 1, 2013. The IRS has also created a model Internal Revenue Code Section 83(b) Election Agreement that employers may use for employees who elect to include their restricted stock in income within 30 days of the date stock is transferred to them. Use of the form is not mandatory, but employers that choose to create their own § 83(b) election forms must include certain information required by the proposed regulations.
Author: Rena Pirsos, JD, Legal Editor
Employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans, may be subject to withholding for federal income taxes (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) taxes. This section assists HR professionals in understanding how each particular type of benefit plan must be structured and how to properly tax and report contributions, reimbursements and distributions in order to ensure compliance with the Internal Revenue Code.
Employees' salary and fringe benefits are subject to federal income taxes, Social Security and Medicare taxes, and federal unemployment insurance tax. However, certain cash and noncash fringe benefits may be offered to employees on a tax-free basis, while an otherwise tax-free fringe benefit becomes taxable compensation to employees if employers do not meet the rules for that particular fringe benefit .This section assists HR professionals in determining which fringe benefits (e.g., company car, health benefits) and other compensation (e.g., bonuses, awards) are taxable or not.
As mandated by the Internal Revenue Service, every employer that is organized as a corporation that transfers stock to any person upon the exercise of an incentive stock option must file Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), on an annual basis.
As mandated by the Internal Revenue Service, every employer that is organized as a corporation, and that records or has its agent record the first transfer of legal title to shares of stock acquired by employees upon the exercise of options granted under an employee stock purchase plan must file Form 3922, Transfer of Stock Acquired Through An Employee Stock Purchase Plan Under Section 423(c), on an annual basis.
Employers should consider providing benefits that offer convenience and cost savings to employees even if they are not legally required to do so, as they can increase retention and improve recruitment. This section provides an overview of popular benefits, including commuter/transportation benefits, dependent care benefits, tuition assistance, employee assistance programs, discounted insurance benefits and severance benefits.
Over the past several years, an increasing number of employers have decided to include payroll operations within the HR department rather than within the finance or accounting department. This section assists HR professionals in understanding all the issues involved in payroll tax law compliance in order to effectively oversee and manage payroll operations.
Attracting, motivating and retaining talent is critical to an employer's short- and long- term success. This section assists HR professionals in implementing a comprehensive, integrated total rewards strategy that can help achieve those important objectives.
HR guidance on the taxation of stocks and stock options.
Sorry, this feature is not yet available on the preview site