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"The tax rate? 1.5%. And remember that neither the federal government, nor California, tax gains on most employee stock options at all." Absolutely false. When

by jonburs 16y ago

"The tax rate? 1.5%. And remember that neither the federal government, nor California, tax gains on most employee stock options at all." Absolutely false. When exercised non-qualified stock options (the most common kind) are taxed as income (at the federal level) based on the difference between the strike price and the current fair-market value. This is true even when the options are in a non-public company. Every time I've exercised options I've had to pay tax witholding, and the income and witholding were reported on the relevant W2s. I don't know how most states treat options; I live in one (WA) that doesn't have an income tax.

pkghost 16y ago
The article discusses payroll tax, which employers pay, not income tax, which employees pay.
- jonburs 16y ago
  Employers pay their part of federal FICA (payroll) taxes when non-quals are exercised. Likewise the person exercising the option must pay Social Security (if they're still below the limit) and Medicare taxes.
- dedward 16y ago
  This is where it gets confusing in Canada, and people get bitten. It DOES work this way in Canada, - when you exercise an employee stock option and convert it to stock, you have an immediate tax obligation based on the difference between your option value and the current market value (specified somehow, I forget). That is considered income, and you are liable for it. If it's going to be considered income, then the employer SHOULD pay the witholding tax just as with regular income, because we're taxed as if it's regular income. I wish employers had done this - mine chose not to (they weren't required to) - and the burden was on me to know that it would be considered income nad I had to pay it. (So yes, that means when I exercised it I sold it all at the same moment, put half away in savings for tax time, and did whatever with the rest.)

by jonburs 16y ago

pkghost 16y ago

The article discusses payroll tax, which employers pay, not income tax, which employees pay.

jonburs 16y ago
Employers pay their part of federal FICA (payroll) taxes when non-quals are exercised. Likewise the person exercising the option must pay Social Security (if they're still below the limit) and Medicare taxes.
dedward 16y ago
This is where it gets confusing in Canada, and people get bitten. It DOES work this way in Canada, - when you exercise an employee stock option and convert it to stock, you have an immediate tax obligation based on the difference between your option value and the current market value (specified somehow, I forget). That is considered income, and you are liable for it. If it's going to be considered income, then the employer SHOULD pay the witholding tax just as with regular income, because we're taxed as if it's regular income. I wish employers had done this - mine chose not to (they weren't required to) - and the burden was on me to know that it would be considered income nad I had to pay it. (So yes, that means when I exercised it I sold it all at the same moment, put half away in savings for tax time, and did whatever with the rest.)